The Federal Reserve Board has denied the Wyoming cryptocurrency bank’s application to become a member of the Federal Reserve System, officials announced Friday, dealing backing for the crypto industry’s efforts to build acceptance in mainstream US banking.
Many in crypto have been looking for Cheyenne-based application Custodia Bank which is more than 2 years old as a bellwether for crypto banking. Approval means access to Federal Reserve services including electronic payment systems.
The rejection raises doubts about the viability of crypto banking, especially in Wyoming, a state that has sought to become a center for crypto banking, exchanges and mining.
Custodia’s business model and its focus on crypto presented “significant safety and soundness risks” for depositors, the Federal Reserve Board said in a statement.
“The board has previously clarified that such crypto activities are highly likely to be inconsistent with safe and sound banking practices,” he added.
The council also expressed doubts about Custodia’s ability to prevent money laundering and terrorism financing through crypto.
Custodia sued the Federal Reserve Board and the Federal Reserve Bank of Kansas City in Wyoming federal court last year, accusing them of taking an unreasonable amount of time for the application. In a statement on Friday, the company said it was “surprised and disappointed” by the rejection and promised to continue to ligate the problem.
“Custodia offers a safe solvent alternative, federally regulated, to reckless speculators and crypto grifters who penetrate the US banking system, with disastrous results for some banks. Custodia is actively seeking federal regulation, going beyond all the requirements that apply to traditional banks,” said CEO Caitlin Long.
Wyoming in recent years has passed many crypto-friendly laws and regulations and blockchain, the electronic ledger on which Bitcoin, Etherium and other cryptocurrencies are launched. One new law allows for state-chartered crypto banks called special depository institutions.
Wyoming has hired four crypto banks called SPDIs, or “speedies,” including Custodia. They do not show any public activity while the Custodia application is pending.
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