The Custodia Bank lawsuit against Federal Reserve has reached a critical point: Summary Judgement.
Important News
- Custodia Bank has asked for summary judgement in its lawsuit against the United States Federal Reserve, a legal move sometimes indicating that the evidence it published during the earliest part of its lawsuit is so compelling that a trial is not needed.
- Custodia Bank Founder and CEO is Caitlin Long, a Harvard Law School graduate , and banker with 22 years of banking experience working for Credit Suisse, Morgan Stanley and Mellon Bank, and has owned bitcoin since 2012] is leading the bank during this fight,
- Custodia Bank is a rare breed of bank called a a Special Purpose Depository Entity, which acts simply as the custodian of your deposited money, doesn't engage in loaning your deposits or investing your deposits, and makes its money from customers only through fees.
- This means that unlike practically every other bank, which makes money on loans and investments of customers deposits, a non-lending banks customers funds are never at risk.
- 2023 was a year when several large banks went out of business due to their loans, and linvestments, and lost millions of dollars of customers funds. Rational people would think the fiunding aof a non-klending bank in such a climate would be met positively by Federal Banking Regulators.
- And in fact the bank claims that initial reviews by the Federal Reserve Bank were stellar.
- But when the news leaked that Custodia Bank planned to also custody bitcoin, like it custodied money, thus providing it's customers with the same secure way to hold their bitcoin as their cash, it is reported that it's former friends turned to enemies.
- It's its Federal Reserve Master Account application, a crucial piece in its journey towards financial viability was turned down, with the ironic statement that the bank could not be financially viable. i
- Bankers are polite people, who do not rock the boat, and never sue the Federal Reserve Bank, but Custodia Bank CEO Caitlin Long chose not to go quietly into the night to die. But instead she and her bank turned to fight.
- Ironically, several other custody banks, whose Federal Master Accounts were rejected have also decided to not go quietly into the night, and as if inspired, they are suing the Federal Reserve also.
- This is a historical event in Federal Reserve Banking history in the United States, as younger generation people, with 20 plus years experience in the banking system are trying to change the rules and create bridges or meeting points between the traditional banking system and the blockchain.
- Caitlin Long's very own words are that she wants to build a regulated, compliant bridge between cryptocurrency and the modern banking system, with a intense focus on regulatory compliance and safety.
- This should have been a time when the regulators rolled up their sleeves to work hand in hand with industry, as they should sghare the same goal.
- But it appears that something else got in the way of rational and logical thought.
- So instead of being a shining regulatory light, leading the banking industry into the light of progress and innovation, the Federal Reserve instead appears to have chosen to be dragged screaming and kicking into the future.
- Sad...
- Read more below.
@shortsegments
Jan 17, 2024 -
Custodia Bank presents "Exhibit BS" in its lawsuit against the Fed
By Crystal Kim, author and creator of Axios Crypto Newsletter
A court battle between a novel bank that wants to do business in crypto and the Federal Reserve Board is coming to a head.
Zoom in: The central question in this case is whether a politically motivated Fed intervened in a process conducted by one of the reserve banks it oversees, wrongfully denying Custodia Bank a Fed master account.
The big picture: One major unresolved question that reared its head in 2023 relates to Operation Choke Point 2.0.
Crypto is arguing that it is being unfairly shut out from key services like banking, whereas bank regulators have justified their arm's-length stance, citing systemic risk.
A win for Custodia may not be a broader win for crypto, but could open the door for other banks that want to do business with the industry.
Catch up fast: The bank first sued in June 2022, saying the Kansas City Fed had taken months to decide on its master account application, though the process was supposed to take days.
Now, Custodia is arguing that it was held to different standards and subject to Kafkaesque bureaucratic processes, described as "a ploy to derail Custodia's master account application."
In December it filed for summary judgment, publishing evidence surfaced through discovery that would appear to prove that point.
Read the rest of the article here: Source
It's author is Crystal Kim, and she is a New York-based crypto reporter for Axios and author of the Axios Crypto newsletter.
Write her here: email. [email protected]
Source
Posted Using InLeo Alpha
Posted Using InLeo Alpha
I like Custodia Bank
So I wrote about it before here
Custodia Bank Account, the self-custody wallet alternative for Bitcoiners
Introduction: The self custody alternative for cash/fiat and bitcoin
Body
depositors of regular banks are insured by FDIC
Summary
Last Words
This is an interesting development, so this bank has been building itself while we were all sleeping.
Yes, very much so.
Followup: from this source: https://x.com/MetaLawMan/status/1752722655881441651?s=20
All a quote:
It’s not just the SEC.
The Federal Reserve leads the Operation Chokepoint 2.0 crackdown on crypto.
Custodia Bank
@custodiabank
has sued the Fed because it failed to approved Custodia's application for a Fed "master account."
A Fed "master account" is essentially a bank account for banks, allowing banks to use the Fed system for check clearing, wire transfers and ACH payments.
Federal law requires the Fed to grant a master account to any federal or state chartered depository institution.
Custodia is a Wyoming chartered depository institution.
It usually takes 5-7 business days for the Fed to approve a master account.
Custodia waited with no response from the Fed to its master account application for 20 months.
So, Custodia was left with no option but to sue the Fed.
The Fed then denied Custodia’s application for a master account 8 months after the lawsuit was filed.
(Yes, this does sound exactly like how the SEC treated
@Coinbase
's petition for rulemaking.)
Custodia has turned up some fascinating details in the discovery it has conducted against the Kansas City Fed and the main Fed in DC.
A tangled web indeed:
In connection with Custodia's application for a master account, the Kansas City Fed conducted a comprehensive examination of Custodia and submitted its Report of findings to the main Fed in DC.
What happened with that Report tells you all you need to know about how our government is treating crypto.
Capital
After a comprehensive investigation, the Kansas City Fed's Report concluded that Custodia’s capital was “adequate.”
Without any additional investigation, the Fed in DC changed the Report to say there was a “lack of a robust capital requirement framework” at Custodia.
Risk Management
The Kansas City Fed concluded that Custodia had “strong risk management” practices.
The Fed in DC changed the Report to say there were “significant risk management gaps.”
Liquidity
The Kansas City Fed concluded that “liquidity risk was relatively low” at Custodia.
This makes sense because, unlike banks that use a "fractional reserve" business model to lend out deposits, Custodia uses a "fully reserved" model--meaning it retains liquid reserves covering over 100% of the deposits it takes in.
Notwithstanding its hyper-conservative liquidity model, the Fed in DC changed the Report to say there were “insufficient liquidity risk management processes” at Custodia.
Management Experience
The Kansas City Fed concluded that the experience of Custodia's management team was “impressive” and “extensive.”
The Fed in DC changed the Report to say there was a “lack of collective depth of relevant banking experience” at Custodia.
The Report, “revised” by the Fed in DC to say the opposite of what the Kansas City Fed had concluded, was used as the basis for denying Custodia's application for a master account.
It is obvious from the documents uncovered in discovery that the process was rigged because the Fed objected to Custodia’s plan to provide banking and digital asset services to individuals and businesses involved in crypto.
To their credit, the
@BlockchainAssn
and the Attorney General of Wyoming filed amicus briefs in support of Custodia's recent motion for summary judgment.
Fighting the Fed is the quintessential David v. Goliath battle.
Fortunately, Caitlyn Long
@CaitlinLong_
the CEO of Custodia, is a fighter.
But Caitlin is not just fighting for Custodia,
she is fighting for all of crypto and the principle of financial freedom.