US Fed rejects Custodia Bank membership over crypto market links

A 86-page report explaining why Custodia Bank was denied the Federal Reserve published membership on March 24.

The United States Federal Reserve published an 86-page report on March 24 outlining the rationale for rejecting Custodia Bank’s membership application in January. The study cited the bank’s presence in the cryptocurrency market as a significant factor in the rejection.

The article claims that the Fed’s board has expressed “concerns about banks with business plans focused on a narrow sector of the economy,” specifically highlighting the study’s emphasis on banks’ excessive operations devoted to the cryptocurrency industry.

Custodia is an uninsured depository institution planning to provide services and products relevant to the crypto-asset industry, raising worries about its ability to prevent money laundering and maintain financial stability.

In addition, the text stresses the need for members of the Fed to coordinate their business strategies with their risk management structures and procedures.

The speculative and volatile character of the crypto-asset ecosystem is not compatible with the aims of the Federal Reserve Act, and Custodia Bank would be prohibited from operating crypto-related services if it were admitted to the System. In the report, it says:

“Until the operations are done as primary is legal for national banks, “further,” Custodia “would be prohibited from carrying out a number of the novel and unparalleled activities it proposes to conduct.”

Miller said the Fed’s decision shows it lacks “long-term vision” and can’t adjust to the market. Miller said, “Perhaps a greater focus on real-risk areas would have prevented the bank failures that Custodia was designed to prevent.” Unfortunately, Custodia has to resort to the legal system to protect its interests and force the Federal Reserve to follow the rules.

The Federal Reserve Bank asserts that the report is 41% longer than the most extended order it has ever issued on any topic and 14 times longer than its previous most significant rejection order. The Federal Reserve first turned down Custodia Bank’s application for membership in late January and again in February because the bank’s initial submission “was inconsistent with the required factors under the law.”

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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.

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