• The Federal Reserve Board has denied Custodia Bank’s application to become a member of the Federal Reserve System.
• The Fed stated that the application was „inconsistent with the required factors under the law“ and had an „insufficient“ management framework.
• Custodia’s application for a master account remains pending, the bank said in a tweet.
The United States Federal Reserve Board has rejected Custodia Bank’s application to become a member of the Federal Reserve System. This decision came after Custodia Bank applied for the application in 2019, and subsequently sued the Fed in an attempt to speed up the decision.
In its announcement, the Fed stated that the application was „inconsistent with the required factors under the law“. It also cited an earlier joint declaration by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve stating that crypto assets were at odds with sound banking practices. Additionally, the Fed noted that Custodia had an „insufficient“ management framework.
In spite of the rejection, Custodia’s application for a master account remains pending. A master account enables a bank to make international transfers and carry out other important functions. Custodia, headed by Caitlin Long, applied for the master account in 2020 and sued the Fed over the long delay in considering the application in June.
In response to the decision, Custodia Bank released a statement expressing their disappointment in the decision but maintained their commitment to the process of obtaining a master account.
The rejection of Custodia Bank’s application shows that the Federal Reserve Board is still cautious about the banking system and its involvement with crypto assets. This decision could have a ripple effect on similar applications, as other banks attempt to become members of the Federal Reserve System. It remains to be seen what the future holds for Custodia Bank and other banks attempting to join the Federal Reserve System.