Crypto-friendly Custodia Bank, founded by Caitlin Long, a well-known figure in the crypto industry, has rejected its application under the supervision of the US Federal Reserve (Fed), according to an official announcement.
The council previously announced its rejection of the application. Still, the announcement confirmed that the order explaining the decision was not available because it had to be reviewed for confidential information.
Fed Decision Based On Custodial Relationship With Crypto?
The order of the Federal Reserve Board noted “concerns” about the proposed business plan of Bank Custodia, which is entirely focused on the crypto sector. The Board believes that banks with business plans focused on narrow economic sectors may pose a higher risk, as they may be more “vulnerable” to economic or regulatory challenges.
Furthermore, the rebuttal recently released by the Fed notes that the Board’s concerns are higher regarding Bank Custodia. Financial institutions believe that crypto-friendly banks are “uninsured depository institutions,” not backed by the Federal Deposit Insurance Corporation (FDIC), and may pose greater risks to depositors and the financial system as a whole.
In addition, following the Fed’s rejection of crypto-friendly banks, Bank Custodia proposed the issuance of Avits, which are dollar-denominated tokens designed to function as programmable “electronic negotiating instruments” and as deposits for federal banking purposes. the law.
According to the press release by the Fed, they note that Custodia Bank does not refer to Avits as “stablecoins” but they may be similar to stablecoins like Tether USDT and USDC.
This proposed issuance of Avits by Custodia Bank may be considered a potential risk by the Fed, due to concerns about stablecoins and their potential use for “illegal purposes.”
Custodia Bank’s Response to the Fed
After the conclusion repeated by the Fed, Bank Custodia issued its response. Financial institution and founder Caitlin Long made several statements about the need for fully solvent banks and the Federal Reserve’s handling of the risks managed by banks and the crypto industry.
Custodia Bank proposed a model that would retain $1.08 in cash to return every dollar of customer deposits, which may seem like a more conservative and risk-averse approach to banking.
Custodia Bank’s statement also highlighted that there is a great need for solvent banks that are equipped to serve the “fast-changing” industry in an era of rapidly increasing technology, indicating the need for banks to adapt to customer demands and changes. in industries like fintech and crypto-assets.
The statement by Custodia Bank also shows that Custodia is not afraid of what it considers to be a coordinated “attack” and a leak of confidential information by the Fed.
The news also indicated that the recently released order rejecting Custodia Bank’s application for membership in the Federal Reserve System caused many procedural “abnormalities, factual inaccuracies, and general bias against the crypto industry.”
In addition, the statement by Bank Custodia indicates that the bank will have to go to court to vindicate its rights and force the Fed to “comply with the law” in response to the rejection of its application to become a member of the Federal Reserve System.
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