Custodia Bank's Request for Fed Supervision is Rejected by the US Federal Reserve
The crypto-focused Custodia Bank asked the Federal Reserve Board to evaluate whether it should remain a member of the Federal Reserve System, but they rejected the proposal.
A district judge has permitted a lawsuit between the two parties to proceed, despite the United States Federal Reserve rejecting Custodia Bank's request to rethink its application to join the Federal Reserve System.
On February 23, the central bank stated that Custodia's membership application had been rejected, stating that the Federal Reserve Board had earlier determined that it "was inconsistent with the requisite conditions under the legislation."
Over four years after submitting its application in 2019, Custodia was denied membership by the Fed in January. In accordance with board policies, applicants may ask for a reexamination of membership decisions.
The Fed stated that Custodia's management structure was "insufficient" at the time of the denial.
It also cited a joint statement it issued with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency that said cryptocurrencies were "inconsistent with safe and sound banking practices."
Custodia has stated that it wants to become a member of the Federal Reserve System in order to be subject to the same regulations as regular banks and to pave the way for other crypto-banks who want to be held to the same high standards.
When Cointelegraph contacted Custodia, the company declined to respond.
A Lawsuit Will Proceed
A Wyoming District Court judge earlier this week, on Feb. 22, rejected a Fed board petition to dismiss Custodia's case about a more than two-year wait for a Federal Reserve master account.
Custodia would be able to use the Federal Reserve payment systems by using a master account rather than a different bank. On January 27, more than two years after Custodia sought for the master account in October 2020, the Fed rejected the request.
As a result of the account rejection rendering the complaint irrelevant, the Fed subsequently filed a motion to dismiss the case. Custodia, however, filed a proposed revised case on February 17 and requested the court to reverse the Fed's decision, arguing that as part of a "concentrated and concerted" effort with President Joe Biden's administration, the Fed illegally singled out and rejected its application.
The case "zeroes in on the main legal issue: whether Congress ever authorized the Fed jurisdiction to determine master accounts at all," according to a statement from Custodia's Nathan Miller on February 17. The crypto-bank "tried every avenue to find a decent route ahead," he continued, but the Fed "pressed their hand." Custodia must submit its first updated complaint to the court by March 1 under the judge's directive.
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