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The Federal Reserve Board has rejected an application by a Wyoming crypto bank to join the Federal Reserve, officials announced Friday, in an attempt to help the crypto industry embrace mainstream U.S. banks. I set back the attempt.
As a pioneer in crypto banking, many in the crypto industry are eyeing Cheyenne-based Custodia Bank’s more than two-year-old application. Approval would have meant access to Federal Reserve services, including electronic payment systems.
The refusal raises questions about the viability of crypto banking, especially in Wyoming, which has sought to become a hub for crypto banking, exchanges, and mining.
Custodia’s business model and focus on cryptocurrencies poses “substantial safety and prudential risks” to depositors, the Federal Reserve said in a statement.
Federal Reserve officials during the Fed Listens event in Washington, DC, Friday, Sept. 23, 2022. (Aldrago/Bloomberg via Getty Images/Getty Images)
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“The board has previously made clear that such cryptocurrency activities are likely to conflict with safe and sound banking practices,” it added.
The board also expressed doubts about Custodia’s ability to discourage money laundering and terrorist financing via cryptocurrencies.
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Custodia sued the Federal Reserve Board and the Kansas City Federal Reserve Bank in Wyoming federal court last year, accusing it of taking unreasonably long to file its application. In a statement Friday, the company said it was “surprised and disappointed” by the rejection and promised to continue to pursue litigation in the matter.
“Custodia offers a safe, federally regulated alternative to the reckless speculators and cryptocurrency scammers who have infiltrated the U.S. banking system, with disastrous consequences for some banks. Custodia has aggressively pursued federal regulation and exceeded all requirements applicable to traditional banks,” the statement quoted CEO Kaitlyn Long.
File photo: A representation of the cryptocurrency is shown in this diagram on 10 August 2022. (REUTERS/Dado Ruvic/Illustration/Reuters Photos)
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Wyoming has passed a number of crypto and blockchain-friendly laws and regulations in recent years, the electronic ledger on which Bitcoin, Ethereum, and other cryptocurrencies run. A new law allows state-licensed crypto banks called special purpose depository institutions.
The state of Wyoming has chartered four crypto banks called SPDI or “Speedy”, including Custodia. They have shown little public activity while their custodian application is pending.