Custodiaan innovative bitcoin and cryptocurrency bank seeking to establish a charter in Wyoming, has taken a bold step by filing a revolutionary trial against the Federal Reserve on June 7, 2022. The lawsuit stemmed from the Fed’s inexplicable delay in approving Custodia’s application for a “primary account,” a process that typically takes 5-7 days but was in waiting for more than two years. This extended delay, eventually turning into a denied on January 27, 2023, have raised concerns about potential biases favoring incumbent banks over disruptive newcomers like Custodia. The outcome of this lawsuit could have profound implications for the future of banking regulation and reshape the entire industry.
Custodia’s disruptive approach aims to revolutionize the banking model by positioning itself as the least risky bank in the United States, which would make it very attractive to investors. It does this through its charter as a SPDI bank or special purpose depository institution. These SPDI banks “are fully reserved banks that take deposits and conduct other activities ancillary to the banking business, including custody, asset management, fiduciary asset management and related activities,” according to THE official site. In other words, their business model is to make money from banking services and take far less risk than any other bank in the world. The key aspect of Custodia’s strategy is to completely eliminate the controversial practice of fractional-reserve lending, a move no other bank in the United States has undertaken. If Americans had any idea what kind of risk they are taking by depositing money in a fractional reserve bank, they would probably revolt.
The SPDI banks’ commitment to eliminate fractional-reserve lending would likely strike a chord with institutions seeking to mitigate risk and hedge their investments. Additionally, a bank like Custodia could leverage Wyoming’s pioneering regulatory framework for digital assets, providing customers with a system that guarantees safety and security without resorting to remortgage or over-indebtedness. This distinctive offer differentiates banks like Custodia from traditional banks and positions it as a trusted partner for institutional investors.
The lawsuit brought by Custodia against the Federal Reserve marks a historic step. As the matter moves into the discovery phase, previously undisclosed emails and internal documents within the Fed are expected to come to light. This transparency could unveil the potential advantages granted to incumbent banks and shed light on the fairness of the approval process. Custodia will also likely have the opportunity to conduct sworn interviews with prominent Fed officials, including Jay Powell and Kansas City Fed Governor Esther George. Such testimonials could reveal further information about the approval process for moonstone bankin which FTX/Alameda has invested, raising questions about proper handling and fairness.
Although the outcome of the lawsuit remains uncertain, a decision favorable to Custodia could lead to a substantial influx of institutional capital into Wyoming. The state’s digital asset regulatory framework, coupled with Custodia’s disruptive business model, provides clarity and priority to digital assets, attracting institutional investors looking for reliable and innovative banking solutions. The potential impact of Custodia’s success extends beyond the banking sector, potentially triggering major Bitcoin price movements and influencing future banking regulations. As the case progresses and the court demands an administrative record from the Federal Reserve, the urgency and importance of this lawsuit should become more apparent in the US courts.
In her March 2023 Newsletter, Lyn Alden puts it bluntly, “From the perspective of depositors, banks are essentially highly leveraged bond funds with payment services attached, and we naively trust them with our hard-earned savings.” Where would you prefer to keep your money, in a “high leverage bond fund” or with Custodia?
If the answer to this question is unclear, it’s time to wake up.
The philosophy is simple: instead of the famous mantra “Don’t be mean”, SPDI bank regulations make it “You can’t be mean”. Unlike traditional banks, an SPDI bank like Custodia would prioritize the safety and well-being of its customers.
This case can serve as a balance sheet and could become a watershed event that extends far beyond bitcoin, exposing the Federal Reserve’s overreach on our money and the deep injustice of our banking systems. Advances in technology have brought these issues to the fore, demanding action.