The bank promised to “continue to litigate” in efforts to bolster crypto adoption
The Federal Reserve Board on Jan. 27 denied an application by Custodia Bank Inc. to become a member of the Federal Reserve System.
The move comes amidst increasing regulatory scrutiny from the highest levels of the US federal government in the wake of industry-wide scandals like FTX and Genesis, which wiped away billions of dollars of retail and institutional investors’ money in 2022.
The Board found that “Custodia’s risk management framework was insufficient to address concerns regarding the heightened risks associated with its proposed crypto activities, including its ability to mitigate money laundering and terrorism financing risks,” according to the press release.
Custodia is a chartered bank registered in Wyoming that describes itself as “a bank formed to be a compliant bridge between digital assets and the U.S. dollar payments system, and a custodian of digital assets.”
Though they are not regulated by the Federal Deposit Insurance Corporation (FDIC), the bank issued an application in 2019 to obtain what is known as a “master account” license with the Federal Reserve, which would have allowed it to carry out international transfers and other important functions needed to clear crypto hurdles.
The move comes on a busy day for US federal government agencies, which also saw an economic roadmap for regulating cryptocurrencies by members of the Biden administration, which, in part, addressed the misinformation regarding crypto and FDIC.
“Custodia is surprised and disappointed by the Board’s action today,” said Caitlin Long, CEO of the company. “Custodia offered a safe, federally regulated, solvent alternative to the reckless speculators and grifters of crypto that penetrated the US banking system,” Long added.
“Custodia actively sought federal regulation, going above and beyond all requirements that apply to traditional banks […] we will continue to litigate.”
The move sent Silvergate Capital (SI) share price tumbling more than 10% today
Silvergate Capital, the parent company to the crypto bank Silvergate, has announced it will be suspending Series A preferred stock dividends as it hopes to restructure following heavy loses and FUD surroundings its exposure to several now defunct crypto entities.
The company said Jan. 27 that it was doing so to maintain liquidity on its balance sheet, all the while navigating a series of exposures to several of crypto’s most toxic entities, including FTX and Genesis.
Silvergate Capital Corp. is traded on the New York Stock Exchange under the ticker SI. The Silvergate bank, founded in a small California town in 1988, rose to prominence as the banker of choice for many now null crypto firms, including FTX, who had an estimated $1.2 billion worth of deposits held in the bank at the time of its collapse last November.
While Genesis, the digital asset prime brokerage founded by Digital Currency Group CEO Barry Silbert, now insolvent, also had assets with the bank totaling $2.5 million, it was reported.
Compounding matters even further was a bank run that saw $8.1 billion worth of deposits withdrawn earlier this month in a decline of roughly 68%, forcing Silvergate to liquidate assets and lay off 40% of its staff. At the time, the company said there was a “crisis of confidence across the ecosystem.”
By the end of 2022, Silvergate said in a statement that they held more than $150 million worth of assets from customers who had filed for bankruptcy protection.
After going public in 2019, shares of Silvergate rose to a high of $222 in November 2021, the same month, Bitcoin peaked at over $65,000 USD. Since then, Silvergate Capital shares have fallen to $12.68, more than 90% below their all-time high.
