The Federal Reserve (Fed) has come out all guns blazing against Custodia Bank’s attempt to become a member of the Federal Reserve System, as it criticized the proposal and justified its rejection.
In an 86-page document released on Friday, the Fed claimed there are fundamental concerns about Custodia’s approach.
Custodia Bank, formerly known as Avanti, is a Wyoming state-chartered special depository institution. It applied to become a Federal Reserve System member and obtain a Federal Master account.
But the Fed rejected the application for membership in January 2023 after 18 months. Custodia filed a lawsuit against the Fed in June 2022 over its master account application which is still pending.
Fed Gives Detailed Reasons for Rejection
At the time of the rejection, the Fed stated that it rejected the application because of the significant risks surrounding the business model and insufficient risk management systems. Its new statement delved further into explaining those reasons.
According to the Fed, its reason for rejection can be classified under four headings. These are managerial factor, financial factor, corporate powers factor, and convenience and needs factor. It added that Custodia does not have adequate risk management systems and control suitable for the crypto industry that it chooses to serve.
“Those concerns are further elevated with respect to Custodia because it is an uninsured depository institu
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Author: Oluwapelumi Adejumo
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