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On Friday, the Federal Reserve Board announced that it had denied the application by Custodia Bank to become a member of the Federal Reserve System. Custodia is a Wyoming chartered government bank with no FDIC insurance. The special bank's objective is to become a bridge between the digital asset industry and the USD payment system.
Additionally, the Federal Reserve issued a policy statement proposing to extend crypto-asset restrictions to uninsured state chartered banks to put them on a level playing field with national banks and FDIC-insured banks.
The seven members of the Federal Reserve Council voted against access to a master account for guardians.
The reasons for rejection from the Fed include proposals for "new and untested crypto activities that include the issuance of an outstanding crypto asset, Public and/or Distributed Networks", the Federal Reserve stated that the custody risk management framework was "inadequate" to address high crypto risks, especially aml.
In addition, the Federal Reserve stated that Custodia's risk management framework was "inadequate" to address the high risks associated with cryptography, particularly AML. Without a direct account, it must go through intermediaries, adding a layer of costs that the blockchain seeks to deal with.
"Custodia gave away a safety deposit box, federally-regulated, a creditworthy alternative to the foolhardy crypto speculators and scammers who have penetrated the American banking system, with devastating results for some of the banks," said Long, custodia ceo. "Custody was actively pursuing federal regulation that went beyond all of the requirements for traditional banks. "The Guard was actively seeking federal regulation that exceeded all the requirements for traditional banks.
The Commission's refusal is unfortunate, but it is consistent with the concerns raised by Custodia about how the Federal Reserve handles its claims, which we will continue to address in litigation." They also have their digital dollar issued by the bank, avit.
Considering the collapse of the FTX, other breaches of cryptography and volatility, the government is going after the industry and trying to minimize the linkages between the cryptography and banking sectors.
However, the founder of Custodia Caitlin Long is very thoughtful about the industry. Since launching Custodia in 2020, the company has been committed to providing a regulated pathway for the digital asset industry. Prior to entering the world of cryptography, his CV included a nine-year stay with Morgan Stanley, followed by ten years with Credit Suisse.
Prior to entering the world of cryptography, she spent nine years with Morgan Stanley and 10 years with Credit Suisse.
Federal Reserve crypto proposals for uninsured state banks
Friday’s Federal Reserve publication was a draft policy statement. Its purpose is to prevent state-owned banks from owning most of the cryptocurrencies. As far as stability is concerned, banks would need a letter of opposition from the Federal Reserve and adequate controls in place.
In legal terms, the Federal Reserve may impose banking restrictions on domestic chartered banks. Given that the banks insured by the FDIC have restrictions similar to those of the national banks, all the restrictions of the national banks also apply to them. Given that the banks insured by the FDIC have restrictions similar to those of the national banks, all the restrictions of the national banks also apply to them.
The Federal Reserve says that under Federal Reserve legislation it can impose discretionary limits on state chartered banks, and that's used for crypto restrictions. The smaller Silvergate announced a $1 billion quarterly loss but managed to survive a massive drawdown in deposits from its digital asset customers. It has also offered a range of services, including limited crypto-backed loans. Its price is a little more than a tenth of the number compared with May 2022, before the collapse of cryptography.
The larger Signature Bank was already quite diversified, but it recently announced it would reduce its exposure to the digital asset sector.
