Wyoming Attorney General Bridget Hill, on behalf of the state of Wyoming, filed a motion in opposition to the Federal Reserve Board’s (FSB) report on its regulatory framework for special purpose depository institutions (SPDI), backing Custodia Bank in the process.
According to the motion, Hill requested permission to intervene in Custodia Bank’s lawsuit against the FSB and the Kansas City Fed for delaying and ultimately rejecting Custodia’s application for a master account.
Last June, Caitlin Long’s Custodia Bank files a lawsuit against Fed for “unlawfully” delaying the decision to grant it a master account. According to the lawsuit, a representative of the Kansas City Fed re-confirmed that Custodia was legally eligible for a master account as recently as March 2022.
But Fed took its sweet time to reject Custodia Bank’s application by publishing an 86-page report on March 24, 2023, raising 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 Fed’s report stated: “Those concerns are further elevated with respect to Custodia because it is an uninsured depository institution seeking to focus almost exclusively on offering products and services related to the crypto-asset sector, which presents heightened illicit finance and safety and soundness risks.”
Attorney General Hill’s motion notes “As noted above, the State of Wyoming takes no position on Custodia’s entitlement to a master account. Even so, the State, as the administrator of Wyoming’s SPDI statutes and regulatory regime takes issue with the Defendants’ characterization of Wyoming’s statutes and rules, as embodied in the Kansas City Fed’s Summary Analysis letter.”
The State of Wyoming aims to contend that additional restrictions, such as SPDI’s need to keep unrestricted liquid assets in at least the amount of 100% of their liabilities arising from fiat currency deposits, provide additional mechanisms for supervision and security.
Wyoming’s SPDI legislation is defended by the State against federal regulatory authority that appears to regard state-chartered, non-federally regulated banks as inferior institutions that lack the right to compete with federally regulated ones.
“A disregard for Wyoming’s right to charter depository institutions in the two-tier banking system appears, at least in part, to be the motivation for this disparate treatment and disregard of Wyoming-chartered banks,” Hill stated in the motion.
The motion also noted: “Additionally, because the State of Wyoming seeks to assert claims related to its administration of its own statutes, rather than Custodia’s entitlement to a master account (upon which the State takes no position), the State of Wyoming further seeks leave to file its own Complaint.”
