Custodia Bank's membership denied for ties with crypto markets, says US Fed

The United States Federal Reserve released an 86-page study connected March 24 detailing the reasons for denying Custodia Bank's exertion for rank successful January, including the bank's engagement successful the crypto space. 

According to the report, the Fed's committee has raised "concerns astir banks with concern plans focused connected a constrictive assemblage of the economy", with a precocious attraction of activities related to the crypto industry. The study notes:

"Those concerns are further elevated with respect to Custodia due to the fact that it is an uninsured depository instauration seeking to absorption astir exclusively connected offering products and services related to the crypto-asset sector, which presents heightened illicit concern and information and soundness risks."

The papers besides states that Fed's members indispensable align their hazard absorption systems and controls with the activities described successful their concern plans. Based connected the Fed's purview, "Custodia had not yet developed a capable risk-management model for its projected cryptoasset-related activities, nor had it addressed the highly correlated risks associated with its undiversified concern model." 

If accepted arsenic a subordinate of the System, Custodia slope would beryllium further forbidden to tally crypto-related services "given the speculative and volatile quality of the crypto-asset ecosystem" that is not accordant with the purposes of the Federal Reserve Act." The study states:

"Further, if the Board were to o.k. Custodia’s rank application, it would prohibit Custodia from engaging successful a fig of the caller and unprecedented activities it proposes to conduct—at slightest until specified clip arsenic the activities conducted arsenic main are permissible for nationalist banks [...]."

In effect to the report, Custodia Bank said connected Twitter the "recently released Fed bid is the effect of galore procedural abnormalities, factual inaccuracies that the Fed refused to correct, and wide bias against integer assets."

The slope besides noted that the determination is simply a objection of the Fed's "shortsightedness and inability to accommodate to changing markets." The slope further said that "perhaps much attraction to areas of existent hazard would person prevented the slope closures that Custodia was created to avoid. It is simply a shame that Custodia indispensable crook to the courts to vindicate its rights and compel the Fed to comply with the law.” Cointelegraph reached retired to Custodia Bank but did not person an contiguous response.

CUSTODIA STANDS FIRM IN RESPONSE TO THE FED pic.twitter.com/xXWGjffU3I

— Custodia Bank ™ (@custodiabank) March 24, 2023

In precocious January, the Fed denied a rank request from Custodia Bank, arsenic good arsenic a second application successful February, claiming that its exertion “was inconsistent with the required factors nether the law.”