Fed explains in 86-page report why Custodia Bank's application for membership in January was denied, including the bank's ties to crypto.
to the report, the Fed's board has raised"concerns about banks with business plans focused on a narrow sector of the economy", with a high concentration of activities related to the crypto industry. The report notes:
The document also states that Fed's members must align their risk management systems and controls with the activities described in their business plans. Based on the Fed's purview,"Custodia had not yet developed a sufficient risk-management framework for its proposed cryptoasset-related activities, nor had it addressed the highly correlated risks associated with its undiversified business model.
"Further, if the Board were to approve Custodia’s membership application, it would prohibit Custodia from engaging in a number of the novel and unprecedented activities it proposes to conduct—at least until such time as the activities conducted as principal are permissible for national banks [...]."
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