Custodia Bank Application for Master Account in Federal Reserve System Rejected
The Federal Reserve Board turned down the latest application for a master account by Wyoming-bank. The board cited the heightened safety and risk concerns inherent in the novel business model adopted by the pro-crypto institution.
The Fed illustrated that the risk management framework utilized by Custodia exhibited insufficiency to resolve the aggravated risks characterizing the crypto activities. The board argued that the crypto activities proposed by the Wyoming bank failed to outline how it would mitigate terrorism financing and money laundering.
Application for Membership to Fed’s Reserve System Denied
Fed’s decision on Custodia comes after 1.5 years since the pro-crypto bank expressed membership interest in the master account system. The applicant, previously identified as Avanti Bank, lamented the denial of membership despite its commitment to regulatory compliance.
Custodia chief executive Caitlin Long expressed disappointment with the Fed’s decision. In a subsequent press statement, the official lamented that Fed’s action was surprising. He indicated that the Fed had, in the past 72 hours, alerted Custodia to consider withdrawing the application or wait till its denial.
Long questioned the quick action to deny the application despite Custodia representing a solvent, safe, and regulatory-compliant alternative amid concerns over the adverse impact of speculators. He added that Custodia prioritizes safety and regulatory compliance instead of speculators eyeing the banking system and causing disastrous outcomes.
Custodia Questions the Fed’s Delay
Long regretted that Fed’s board quickly overlooked Custodia’s proactivity in compliance with the federal regulation. In particular, he questioned the Fed’s noncommittal to outline the specific loopholes. Instead, Long wondered why the Custodia reputation that supersedes conventional banks was overlooked.
Long disclosed that the master account application would grant the Wyoming-based bank institution direct access to the Fed’s payment systems. The permit would enable Custodia to leverage the Fed’s reserves in settling transactions with lenders.
Custodia sought the master account membership in October 2020. It earlier alleged delay by the Federal Reserve in a June 2022 suit. The suit indicated that the Fed’s delay was unlawful since the master account application features a 12-month statutory deadline.
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