The US Federal Reserve rejected Custodia Bank's application to become a Federal Reserve System member, citing safety risks with the bank's crypto-focused model
Custodia had already challenged what it called an unlawful delay to its master-account application in a lawsuit against the Federal Reserve and Kansas City Fed. Days before this decision, the Federal Reserve, FDIC, and OCC had jointly warned that issuing or holding crypto could conflict with safe-and-sound banking practices.
First-order effects
Custodia is denied Federal Reserve System membership, with the Federal Reserve explicitly tying the decision to safety risks in its crypto-focused business model.
The ruling applies the concerns in the agencies’ joint crypto-banking warning to a specific bank’s membership bid.
Second-order effects
Other banks pursuing crypto-related models face a clearer signal that safety-and-soundness concerns can constrain their access to core banking-regulatory arrangements.
Crypto banking is being treated as a prudential-supervision question rather than a separate banking category, concentrating influence with federal bank regulators over which models can scale inside the system.
The later withdrawal of pre-approval guidance shows that the durable shift is toward adapting supervisory tools for crypto activity, not necessarily a permanent prohibition on banks’ participation.
The trend: US bank regulators are moving crypto activity into conventional safety-and-soundness oversight, with the intensity and mechanics of that oversight changing over time.
STATEMENT FROM CUSTODIA BANK about today's Federal Reserve action on its membership application. Its master account application remains pending: https://twitter.com/...
@federalreserve announces its denial of the application by Custodia Bank, Inc., Cheyenne, Wyoming, to become a member of the Federal Reserve System: https://www.federalreserve.gov/ ...
This is a sad day for America. What was once a great nation and shining example of economic freedom has degraded into a tin pot authoritarian & corrupt, broken cronyism driven cesspool. https://twitter.com/...
Good to see the system working. I'll call this a victory. Crypto bucket shops given access to the Federal Reserve would set up another financial crisis in the making. https://www.federalreserve.gov/ ...
The irony of US crypto regulations: 1. Make it impossible for crypto companies to get banking services from responsible “adult” banks 2. When small banks come in response to to the market demand (Silvergate/Signature) & don't do proper compliance they push them to drop crypto htt…
This is an unfortunate and consistent pattern in crypto. Regulators lambast the industry for not working with them. However, the few that try go through extraordinary effort and expend considerable resource only to get rejected and die. This signals to everyone not to try. https:…
The Fed has refused to give a master account to Wyoming's stablecoin bank. A tough blow for Custodia as @CaitlinLong_ played by the rules and did everything right. Hard not to view this as the banking lobby trying to kill a disruptive competitor. https://twitter.com/...
Really upsetting to see this decision. Companies that seek out regulation and try to do the right thing get penalized. Meanwhile if you set up an exchange abroad like FTX and bribe the right people you get red carpet treatment. 🤮 https://twitter.com/...
The @federalreserve is independent? Hardly. The Fed dropped their bomb right behind the White House not 2 hours later. White House statement: https://www.whitehouse.gov/... Fed statement: https://www.federalreserve.gov/ ... Fed action on Custodia application: https://www.federalr…