CHEYENNE, Wyoming (AP) — The Federal Reserve Board has denied a bid by a Wyoming cryptocurrency financial institution to join the Federal Reserve System officials on Friday. This was a huge setback for the crypto industry trying to gain acceptance into mainstream US banking.
Many in the cryptocurrency world have been pushing for this to happen. The Cheyenne-based Custodia Bank had an application that was 2+ years old, which was seen as the go-to application for crypto banking. If approved, it would have allowed the public to access the Federal Reserve’s services, as well as its digital money system.
The rejection, however, raises important questions about the feasibility of crypto banking. Wyoming has been attempting to transform itself into a hub for crypto banking, trading, and mining.
The Federal Reserve Board concluded that the introduction of cryptocurrencies and the business model posed “significant safety and soundness risks” to depositors. In a statement, they said they had previously made it clear that such activities are “most likely inconsistent with safe and sound banking practices.”
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The board additionally expressed doubts about Custodia’s ability to prevent money laundering and terrorist financing with cryptocurrencies.
Custodia had already filed a lawsuit against the Federal Reserve Board and the Federal Reserve Bank of Kansas City in the Wyoming federal court, accusing them of taking too long to consider its application. In a press release on Friday, the company said it was “surprised and disappointed” by the rejection and vowed to pursue the matter.
“Custodia had provided a federally regulated, secure, and solvent alternative to reckless speculators or cryptocurrency scammers attempting to enter the US banking system. Some banks have suffered disastrous results,” the statement said, citing chief executive Caitlin Long. “Custodia actively sought federal regulation that went beyond what is required for traditional banks.”
In recent years, Wyoming has passed numerous laws and regulations that support cryptocurrencies and blockchain, including digital ledgers. Bitcoin, Etherium, and other cryptos can be run in the state. A new law allows crypto banks licensed by the state to be referred to as “special purpose depository institutions,” or SPDIs. Four such crypto banks, chartered by the state, are referred to as “speedies.” Custodia’s application was still pending.
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