By Michael Scott
Custodian Bank chief executive Caitlin Long lamented the continued rejection of Custodia Bank’s application for the master account. The executive criticized the continued delay from the US Federal Reserve’s efforts to scuttle the Custodia’s crypto-oriented efforts.
Custodia CEO Criticizes Regulators Coordinated Actions Against Crypto
In a fierce criticism of the Fed, Long asserted that cryptos are inevitable innovations with longevity that regulators cannot whisk away. The executive’s statement on Tuesday February 20, alleged the existence of factions within the Biden administration and Fed scuttling the cryptos integration within the conventional financial institutions.
Long warned that the anti-crypto factions’ wish for digital assets fading is misguided. Instead, cryptos would still integrate with the conventional US banking system. Continued dismissal of cryptos would relegate regulators to engage in an endless whack-a-mole game.
Long criticism of regulators’ action against crypto-oriented integration in the mainstream sector is unsurprising given her recent engagements to champion pro-crypto legislation in Wyoming. Although a crusader of anti-restrictive regulations, Long echoes her February 17 post challenging the federal regulators to weed out firms perpetrating crypto fraud. Although noncommittal on the fraudulent company, she decried the laxity portrayed by regulators by alleging they overlooked her warning of a looming bank run.
Long considers that her grievances seem to retreat into the black holes, citing multiple attempts to inform the bank regulators of risks inherent in the cryptos.
Regulators Unmoved to Approve Custodia Bank’s Applications
She cites the involvement of Custodia staff in the cause of the risks posed by the crypto-related technologies becoming futile for over 2.5 years.
Custodia Bank offers special purpose depository services since its establishment three years ago in Wyoming. Its journey reveals an entity often at loggerheads with regulators’ decisions as it charts its path into the country’s banking system.
Custodia sought membership in the Federal Reserve system in January 2023. However, the bid turned futile as the central bank dismissed the Custodia’s motion. The Fed questioned the safety mechanism and soundness of the institution.
Custodia Bank’s attempts to seek authorization for a master account before Kansas City yielded similar results. The rejection prompted Long to question the autonomy of the Kansas City Reserve Bank in its decision from influence from the Fed board and the White House administration.
Coordinated Effort by Regulators Against Cryptos
Long concluded that rejecting Custodia’s applications reveals coordination among the regulatory agencies. The Custodia executive utilizes the treatment of the application to question the viability of crypto operating within the regulatory perimeters. She added that the denial supports the advocacy of running versions beyond the coverage of the conventional regulated financial system.
Elsewhere, Cheyenne firm renewed its journey for seeking a master account through the February 17 application. It remains uncertain how the regulatory agency would handle the Cheyenne application.
The rejection of the Custodia application could signal the tip of coordinated regulatory action, given the recent US Securities and Exchange Commission (SEC) stance on the Paxos and Kraken days after denying Custodia the master account.
Shoot Stallion to Scatter the Crypto Herd
Long regretted the regulator’s action as likely to push the crypto operators seeking funding to consider beyond the US jurisdiction. She warned that such an outcome could relocate the whack-a-mole game.
Long demands clarity on the mechanism deployed by the regulators. She wondered about the criterion leveraged to involve politicians in sanctioning nonexistent companies.
Long questions the regulators’ choice of Custodia Bank as the sacrificial lamb. She likens the regulators’ decision to one of shooting the stallion for the herd to scatter.
Long sentiments mirror Coinbase chief executive Brian Armstrong’s perspective, alleging SEC for acting frostily. She considers the crackdown initiated by Washington-based regulatory agencies as misguided and failing to alienate good actors oriented to compliance.
Long lamented that policymakers have portrayed intent on strangling the high-integrity crypto operators. She wondered why the applications the cryptos custody firm sought were denied despite seeking the compliant alternative.