Briefly

• Custodia’s bank application was rejected by the Federal Reserve.
• Custodia argued that its model stops the kind of bank run that has plagued the banking sector recently.
• The bank also asserted that the Fed’s statement demonstrated its general antipathy toward digital assets.

The Central bank (Took care of) has come out all firearms bursting against Custodia Bank’s endeavor to turn into an individual from the Central bank Framework, as it reprimanded the proposition and legitimized its dismissal.

The Federal Reserve stated in an 86-page document released on Friday that there are fundamental concerns regarding Custodia’s strategy.

Custodia Bank, previously known as Avanti, is a Wyoming state-contracted extraordinary store organization. It applied for a Federal Master account and membership in the Federal Reserve System.

@federalreserve publishes its order denying the application by Custodia Bank, Inc. to be supervised by the Federal Reserve: https://t.co/NtZVBlJwnM

— Federal Reserve (@federalreserve) March 24, 2023

However, after 18 months, the Fed turned down the membership application in January 2023. In June 2022, Custodia brought a lawsuit against the Federal Reserve regarding the master account application that is still pending.

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Fed Gives Detailed Reasons for Rejection

The Federal Reserve stated at the time of the rejection that the application was rejected due to the substantial risks associated with the business model and inadequate risk management systems. It expanded on those justifications in its new statement.

The Fed’s justification for rejecting the application can be broken down into four categories. The managerial, financial, corporate powers, and convenience and needs factors are all included. Custodia’s lack of appropriate risk management and control systems for the crypto industry it chooses to serve was also mentioned.

“Those concerns are further elevated with respect to Custodia because it is an uninsured depository institution seeking to focus almost exclusively on offering products and services related to the crypto-asset sector, which presents heightened illicit finance and safety and soundness risks.”

Despite the fact that the Federal Reserve acknowledged that the bank “appears to have sufficient capital and resources to sustain initial operations,” the Fed questioned the bank’s sustainability, stating that its business model is susceptible to volatility.

Custodia’s business plan, according to the banking regulator, could even be a danger to the crypto community. Consequently, it rejected it without prejudice.

Custodia Responds

Custodia, on the other hand, has responded to the Fed. It was stated in the statement that the bank model aims to prevent the kind of bank runs that have occurred recently by establishing a fully solvent bank designed to serve industries that are undergoing rapid change.

CUSTODIA STANDS FIRM IN RESPONSE TO THE FED pic.twitter.com/xXWGjffU3I

— Custodia Bank ™ (@custodiabank) March 24, 2023

It criticized what it called “coordinated attacks and behind-the-scenes press leaks of confidential Custodia information” and the Fed and Kansas City Reserve Bank for not approving its application.

“Result of numerous procedural abnormalities, factual inaccuracies that the sod refused to correct, and general bias against digital assets” was the bank’s conclusion regarding the most recent Fed release.

No Room for Crypto?

In the meantime, conspiracy theories that the Biden administration is attempting to de-bank the crypto industry will likely be strengthened by the Fed’s statement. The Fed’s perspective on stablecoins can be gleaned from the release, which is the bank’s longest order ever.

It said that the token might get some backing if Custodia-issued stablecoin AVIT could be deposited into a Fed master account. Empowering it to universally scale rapidly and acquire clients.