Custodia Bank Hires Former Obama Lawyer in Stablecoin Appeal
Custodia Bank, formerly Avanti Bank, has stepped up its legal battle with the Federal Reserve by enlisting the services of Ian Gershengorn, the former acting attorney general under President Barack Obama, and Michelle Kallen, the former attorney general of Virginia.
This happened after Custodia requested the reversal of the Federal Reserve decision denying it direct access to payment systems and membership in the Federal Reserve system. This step shows that the bank wants to strongly object to the decision, which it sees as a vital obstacle. Activities and expansion in the digital asset space.
“Now, @custodiabank “This team is bringing out big guns to fight back…” #federalism issues and extensive experience in federal regulations [#digitalassets]. “He also has an excellent appellate record in government dispute cases.”
— Caitlin Long
(@CaitlinLong_) May 6, 2024
The fact that the legal team has extensive knowledge of state regulatory issues and federalism will also likely increase Custodia’s appeal. Their recent participation in important cases, such as Kallen’s representation of the Select Committee to Investigate the Attack on the United States Capitol on January 6, demonstrates the seriousness of Custodia’s approach to this case.
Custodia CEO Caitlin Long emphasized that the team’s deep experience in federal regulation of digital assets and track record of successful appeals make them the best choice for this critical legal challenge.
Federal Reserve Denial and Depository Response
In January, the Federal Reserve rejected Custodia’s Master Account and Fed Membership applications; This highlighted significant deficiencies in the bank’s risk management and compliance with banking laws, particularly regarding money laundering. This decision followed an 18-month review period during which Custodia alleged that the Fed illegally delayed the application process and damaged digital assets.
Of particular concern to the Fed was Custodia’s business model, in which it operated like an uninsured bank but held cash and other assets to fully support its stablecoin issuance. The central bank claimed that such an approach could increase the possibility of flight and proliferation due to dependence on the volatile market of crypto assets.
The idea of launching stablecoins backed by the bank’s cash reserves was the most problematic issue in the bank’s integration into the Fed’s payment systems. However, as reported by Coingape, Custodia Bank announced last week that it intends to appeal the Federal Reserve’s rejection of its master account application.
Wider Impact on the CryptoBanking Industry
The Federal Reserve’s refusal to approve the application by Custodia reflects broader regulatory skepticism about incorporating cryptocurrency business into the traditional banking system.
This warning has been further strengthened by recent actions against other crypto-friendly financial institutions following the infamous failures of Silicon Valley Bank and Signature Bank. These have created greater understanding about the stability of banks with significant cryptocurrency activities.
Stakeholders in the crypto industry are watching the Fed’s language on stablecoins and its broader implications for banks dealing with digital assets. The Fed’s comments indicate a conservative approach to crypto banks gaining access to underlying financial infrastructure, and this could become a standard that will influence how other institutions approach digital asset integration.
The legal battle between Custodia and the Federal Reserve comes in the context of increasing volatility in global banking, especially for organizations heavily involved in cryptocurrencies.
Also read: India Plans Offline CBDC Availability, RBI Governor Says Highlighting Potential Risks
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Kelvin is a distinguished author specializing in crypto and finance, with a bachelor’s degree in Actuarial Science. Known for her sharp analysis and insightful content, she is fluent in English and specializes in comprehensive research and on-time delivery.
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