The Federal Reserve Board on Friday announced its denial of the application by Custodia Bank, Inc. to become a member of the Federal Reserve System. The Board has concluded that the firm’s application as submitted is inconsistent with the required factors under the law.
Custodia is a special purpose depository institution, chartered by the state of Wyoming, which does not have federal deposit insurance. The firm proposed to engage in novel and untested crypto activities that include issuing a crypto asset on open, public and/or decentralized networks.
The Fed concludes that “the firm’s novel business model and proposed focus on crypto-assets presented significant safety and soundness risks”. The Board has previously made clear that such crypto activities are highly likely to be inconsistent with safe and sound banking practices.