The Federal Reserve explained that it rejected Custodia Bank's application to become a member bank due to possible runs on the bank, among other risks.
: The Fed evaluates on factors in considering membership, and it found that in terms of financial, managerial, corporate powers, Custodia's application was "inconsistent."
On the managerial factor that includes risk. "In general, the Board has heightened concerns about banks with business plans focused on a narrow sector of the economy." On the financial factor: Custodia's reliance on crypto means that it's "without a materially diversified business." On the corporate powers factor: "The Board does not believe that this business model is consistent with the purposes of the Federal Reserve Act.": The Fed focused in on what it refers to as Custodia's "stablecoin," dollar-denominated tokens that would facilitate crypto transactions between counterparties or what Custodia calls Avits.
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