The Federal Reserve has detailed the reasons for rejecting Custodia Bank’s application to become a member of the Federal Reserve System.
Custodia claimed that its model prevented recent bank runs that have been troubling the banking sector. The bank also alleged that the Fed’s statement showed a general bias against digital assets.
However, the Fed rejected the application, citing fundamental concerns about Custodia’s approach. The Fed stated that Custodia did not have appropriate risk management systems to serve the crypto sector and that its business model was vulnerable to volatility.
Custodia objected to the decision, stating that the Fed’s ruling could pose a risk to the digital asset community. The Fed’s statement could fuel conspiracy theories that the Biden administration is trying to remove the crypto sector from banks.
