The United States Federal Reserve released an 86-page report on March 24 detailing the reasons for denying Custodia Bank’s application for membership in January, including the bank’s involvement in the crypto space.
According to the report, the Fed’s board has raised “concerns about banks with business plans focused on a narrow sector of the economy”, with a high concentration of activities related to the crypto industry. The report notes:
“Those concerns are further elevated with respect to Custodia because it is an uninsured depository institution seeking to focus almost exclusively on offering products and services related to the crypto-asset sector, which presents heightened illicit finance and safety and soundness risks.”
The document also states that Fed’s members must align their risk management systems and controls with the activities described in their business plans. Based on the Fed’s purview, “Custodia had not yet developed a sufficient risk-management framework for its proposed cryptoasset-related activities, nor had it addressed the highly correlated risks associated with its undiversified business model.”
If accepted as a member of the System, Custodia bank would be further forbidden to run crypto-related services “given the speculative and volatile nature of the crypto-asset ecosystem” that is not consistent with the purposes…
