3 - 5 minute read
Wyoming is standing its ground against the Federal Reserve Board’s critical statements about the state’s regulatory framework for special purpose depository institutions (SPDI). The state-chartered banks that can handle digital assets have been called into question by the Federal Reserve, which denied Custodia Bank’s application for a master account and membership with the Fed. Custodia CEO Caitlin Long, who helped draft Wyoming’s crypto laws, has been vocal in her pushback against the Fed’s decision, citing Custodia’s proposal to hold $1.08 in cash for every dollar deposited by customers, and suggesting the real reason for denial is a Fed conspiracy to cut crypto off from the banking system.
Wyoming Attorney General Bridget Hill recently filed a motion with the U.S. District Court in Wyoming, asking for permission to intervene in the Custodia lawsuit against the Federal Reserve Board and the Kansas City Fed for delaying and ultimately denying the crypto-friendly bank’s application for a master account and membership with the Fed. Hill argued that it is necessary for the state to intervene to defend “the legitimacy and viability of the State’s statutory framework.”
The crypto industry has been in turmoil after the recent crackdown of China’s central bank on crypto activities, while the crackdown on digital currencies in the US isn’t far behind. The recent denial of Custodia Bank’s application highlights the surprising regulatory barriers that digital asset banks face in today’s environment. While the battle between Custodia and the Federal Reserve Board is not just about crypto, it’s also about the dual banking system in the US that allows banks to charter under either federal or state law. Custodia was granted a SPDI charter from the state of Wyoming in October 2020. However, the Federal Reserve Board did not see that as good enough to grant Custodia membership.
Wyoming Stands Tall
Wyoming is proud of its regulatory framework for special purpose depository institutions, often referred to as the “Wyoming special” or “crypto-charter.” This framework provides an alternative to the traditional banking industry, giving customers more control over their assets. The state sees themselves as a champion for the crypto industry and feels that the Federal Reserve Board is unfairly targeting banks chartering under state law. The denial of Custodia Bank’s application for a master account and membership with the Federal Reserve Board sets an unsettling precedent for new state-chartered banks engaged in digital assets.
The Bottom Line
The standoff between Wyoming’s regulatory framework for special purpose depository institutions and the Federal Reserve Board highlights the complex regulatory barriers that digital asset banks must navigate as they enter the banking system. For traders and investors in digital assets, this conflict highlights the importance of monitoring regulatory developments since unexpected changes in regulation can disrupt the market. The takeaway for traders is that regulatory risk is essential to consider in investment decisions, especially when it concerns digital assets. Traders must also pay attention to the on-going legal battles surrounding the Wyoming special, as it may have implications for the wider industry moving forward.