The Federal Reserve Board has denied a Wyoming application for Federal Reserve System membership, officials announced Friday, as a result of a setback to the industry's attempts to build acceptance in mainstream U.S. banking.
Many in the criptocurrency industry have been looking for Cheyenne-based Custodia Bank's more than 2 year-old application as a bellwether for criptobanking. The access to Federal Reserve services, including its electronic payments system, would have to be granted by approval.
The rejection adds to the doubts about the viability of the cryptocurrencies, particularly in Wyoming, a state that has tried to become a hub of digital banking, exchanges and mining.
The Federal Reserve Board said in a statement that Custodia's business model and focus onCryptocurrencies presented significant safety and soundness risks for depositors.
The board has previously stated that such activities are highly likely to be inconsistent with safe and sound banking practices.
The board expressed doubts about Custodia's ability to discourage money laundering and terrorism financing throughCryptocurrencies.
Custodia brought a suit against the Federal Reserve BoardFederal Reserve Board and Federal Reserve Bank of Kansas City in federal court in Wyoming last year, accusing them of taking an unreasonably long time on its application. The company said in a statement Friday that it was surprised and disappointed by the rejection and pledged to continue to litigate the issue.
Custodia offered a safe, federally regulated, solvent alternative to the speculators and grifters of cryptocurrencies that penetrated the U.S. banking system, with disastrous results for some banks. CEO Caitlin Long said that Custodia actively sought federal regulation, going above and beyond all the requirements that apply to traditional banks.
Wyoming has passed many laws and regulations that are friendly to Cryptocurrencies, such as the electronic ledgers on which Bitcoin, Etherium and other cryptocurrencies run. A new law allows state-chartered criptobanks to be called special purpose depository institutions.
Wyoming has arranged four such banks called SPDI s, or speedies, including Custodia. They have shown little public activity while Custodia s application was pending.