• The United States Federal Reserve Board has denied Custodia Bank’s application to become a member of the Federal Reserve System.
• The bank applied for a master account in 2020 and sued the Fed over the long delay in considering the application in June.
• Custodia Bank’s statement indicated that its master account application remains pending.
The United States Federal Reserve Board has denied Custodia Bank’s application to become a member of the Federal Reserve System. The bank applied for the application in 2019 and sued the Fed in an attempt to speed up the decision. The announcement from the Federal Reserve Board cited that the application was “inconsistent with the required factors under the law.” It also claimed Custodia had an “insufficient” management framework and cited an earlier joint declaration by the Fed with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency that found crypto assets to be at odds with sound banking practices.
Despite the rejection, the bank’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. The lawsuit was filed in the U.S. District Court for the District of Columbia, and the bank sought to compel the central bank to grant it a master account.
The refusal of Custodia’s application could be a major setback for the cryptocurrency industry. The bank had hoped to become the first crypto-focused bank to join the Federal Reserve System. It is worth noting that Custodia is not the only crypto-focused institution that has been refused by the Federal Reserve. Other banks, such as Kraken and Avanti, have also been refused membership to the Federal Reserve System.
As the industry continues to grow, the Federal Reserve will likely face more requests from crypto-focused banks. It remains to be seen how the Fed will respond to such requests. For now, Custodia Bank will have to continue its operations without the backing of the Federal Reserve System.