• The United States Federal Reserve Board has denied Custodia Bank’s application to become a member of the Federal Reserve System.
• The application was rejected due to “inconsistent factors under the law” and “insufficient” management framework.
• Custodia Bank’s application for a master account remains pending.
The United States Federal Reserve Board has recently rejected Custodia Bank’s application to become a member of the Federal Reserve System. Custodia Bank, headed by Caitlin Long, had applied for the application in 2019 and sued the Fed in an attempt to speed up the decision.
In the announcement made by the Federal Reserve Board, it was stated that the application was “inconsistent with the required factors under the law” and also claimed that Custodia had an “insufficient” management framework. The Fed also cited an earlier joint declaration by 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 of the application, Custodia Bank’s application for a master account remains pending. A so-called “master account” enables a bank to make international transfers and carry out other important functions. Custodia had applied for the master account in 2020 and sued the Fed over the long delay in considering the application in June.
In response to the announcement, Custodia Bank tweeted that their master account application remains pending. This tweet drew attention to the fact that the rejection of the application does not mean that the bank’s application for a master account is also rejected.
The rejection of Custodia Bank’s application to become a member of the Federal Reserve System has been met with criticism from some members of the cryptocurrency community. The delay in the decision was also seen as a sign of the federal government’s reluctance to embrace the cryptocurrency industry.
For now, Custodia Bank will have to wait for a decision on their master account application before they can begin to operate as a part of the Federal Reserve System. It remains to be seen if the bank will be successful in their application or not. However, the rejection of their application is a major setback for the bank and the cryptocurrency industry as a whole.