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Cryptocurrency Bank Custodia’s Membership Application Rejected by Federal Reserve

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According to reports, in its explanation of the order rejecting the membership application of Customia, a cryptocurrency bank in Wyoming, the Federal Reserve Board believed that th

Cryptocurrency Bank Custodias Membership Application Rejected by Federal Reserve

According to reports, in its explanation of the order rejecting the membership application of Customia, a cryptocurrency bank in Wyoming, the Federal Reserve Board believed that the business model proposed by Customia was “inconsistent” with the approval. Custodia’s membership application and its master account application were rejected in January, 18 months after the initial submission of the application. Custodia’s predecessor, Avanti Bank, filed a lawsuit against the Federal Reserve in June 2022 alleging that the central bank had illegally delayed its decision, and earlier this year submitted a revised complaint alleging that the Federal Reserve had conspired to obstruct it.

Federal Reserve Board: Customia’s membership application was rejected due to inconsistency between its business model and approval

In January of this year, Custodia’s membership application to become a cryptocurrency bank in Wyoming was rejected by the Federal Reserve Board. The central bank believed that the business model proposed by Custodia was “inconsistent” with the approval. Custodia’s predecessor, Avanti Bank, filed a lawsuit against the Federal Reserve in June 2022 alleging that the central bank had illegally delayed its decision, and earlier this year submitted a revised complaint alleging that the Federal Reserve had conspired to obstruct it.

The Rejection of Custodia’s Membership Application

According to reports, the Federal Reserve Board rejected Custodia’s membership application because they believed that the proposed business model was too risky. The model involves holding large amounts of cryptocurrency and using it as collateral for loans. However, the Federal Reserve is concerned about the volatility of cryptocurrencies and the potential for losses if prices drop significantly.
Custodia’s CEO has been vocal about his disappointment with the rejection, stating that they had addressed all of the Federal Reserve’s concerns in their application. However, the central bank maintains that the proposed business model is too risky and inconsistent with the approval.

Avanti Bank’s Lawsuit Against Federal Reserve

Custodia’s predecessor, Avanti Bank, submitted its membership application to the Federal Reserve Board in July of 2020. However, the central bank delayed its decision, with the application not being rejected until January of this year. In June 2022, Avanti Bank filed a lawsuit against the Federal Reserve alleging that they had illegally delayed their decision.
The lawsuit alleges that the Federal Reserve’s delay in making a decision on Avanti Bank’s application was due to their bias against cryptocurrency banks. The bank believes that the central bank was deliberately trying to obstruct their application, which impacted their ability to operate.
In April of this year, Avanti Bank submitted a revised complaint alleging that the Federal Reserve had conspired to obstruct their application. The bank claims that the central bank’s actions violated the Administrative Procedure Act and their due process rights.

The Future of Cryptocurrency Banking

The rejection of Custodia’s membership application and the lawsuit by Avanti Bank highlights the challenges that cryptocurrency banks face in gaining regulatory approval. Cryptocurrencies are still a relatively new asset class, and central banks are cautious about their use as a form of collateral.
However, as the use of cryptocurrencies becomes more widespread, it is likely that the regulatory landscape will change. More and more companies are accepting cryptocurrencies as payment, and traditional financial institutions are beginning to incorporate them into their operations.

Conclusion

The rejection of Custodia’s membership application and the lawsuit by Avanti Bank against the Federal Reserve highlight the challenges that cryptocurrency banks face in gaining regulatory approval. While the use of cryptocurrencies is growing, there is still much uncertainty surrounding their regulation in the financial sector.

FAQs

Q: What is Custodia?
A: Custodia is a cryptocurrency bank based in Wyoming.
Q: Why was Custodia’s membership application rejected?
A: The Federal Reserve believed that the proposed business model was too risky and inconsistent with the approval.
Q: What is Avanti Bank’s lawsuit against the Federal Reserve?
A: Avanti Bank’s lawsuit alleges that the Federal Reserve illegally delayed their decision and conspired to obstruct their application.

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