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The Federal Reserve Board has rejected the Wyoming Crypto Bank’s application for membership in the Federal Reserve System, officials announced Friday, dealing a setback to the crypto industry’s efforts to build acceptance by major U.S. banks.
Many in crypto have been looking for the blockchain-based Custodia Bank, a more than 2-year-old app, as a bellwether for crypto banking. Approval means access to Federal Reserve services, including the electronic payment system.
The rejection adds to doubts about the viability of crypto banking, especially in Wyoming, a state that wants to become a hub for crypto banking, exchanges and mining.
Custodia’s business model and focus on crypto presented “safety and soundness concerns” to depositors, the Federal Reserve Board said in a statement.
Federal Reserve Board officials at the Fed Horizon event in Washington, D.C., Friday, Sept. 23, 2022. (Al Drago/Bloomberg via Getty Images/Getty Images)
The Federal Reserve’s Goldman Sachs consumer watchdog
“The board has already made it clear that such crypto activities may not be compatible with safe and sound banking practices,” he added.
The board expressed doubts about Custodia’s potential to encourage money laundering and terrorist financing through crypto.
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Custodia sued the Federal Reserve Board and the Federal Reserve Bank of Kansas City last year in Wyoming federal court, accusing them of taking an unreasonably long time on the application. In a statement Friday, the company said it was “surprised and disappointed” by the denial and promised to litigate the case.
“Cstodia provides a safe, federally regulated, liquidation option for crypto speculators and grifters who have infiltrated the US banking system, with disastrous results for some banks,” CEO Caitlin Long was quoted as saying.
File photo: A representation of cryptocurrencies can be seen in this illustration on August 10, 2022. (Reuters/Dado Ruvic/Photography/Reuters Photos)
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Wyoming has passed several laws and regulations in recent years that are friendly to crypto and blockchain, the electronic ledgers on which Bitcoin, Etherium and other cryptocurrencies operate. A new law allows for government-run crypto banks called special purpose depository institutions.
Wyoming has chartered four crypto banks called SPDI’s, or “SPEEDS,” including Custodia. They showed little public activity while the Custodia application was pending.
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