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Wyoming Digital-Only Bank Sues Federal Reserve

in News/banking
Photo by Mark Wilson/Getty Images
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By Jim Angell, Cowboy State Daily

The nation’s second bank dedicated to handling digital assets is suing the Federal Reserve, claiming it is being illegally blocked from accessing the Reserve’s services.

Cheyenne’s Custodia Bank, formerly known as Avanti, filed a lawsuit in U.S. District Court in Cheyenne on Tuesday, saying the Federal Reserve has refused to act for 19 months on Custodia’s application for a master account.

Such an account would give Custodia direct access to the Federal Reserve. The company must now go through an intermediary bank, the lawsuit said, costing it money and preventing it from offering new services.

“This delay in processing Custodia’s master account application is resulting in substantial, ongoing injury to Custodia,” the lawsuit said. “The immediate injury is that the delay has forced Custodia to defer its solo entry into the financial services market in favor of a decidedly second-best and far more expensive alternative: launching with a correspondent bank—which has a master account— while Custodia awaits a decision on its long-pending application.”

Custodia — then known as Avanti Bank & Trust — won approval to operate in Wyoming from the Wyoming Bank Board in October 2020. It was the nation’s second digital asset bank to win approval to open in Wyoming.

The bank holds digital assets such as “Bitcoins” and serves as a bridge between digital asset systems and systems that rely on traditional U.S. dollars, allowing transactions between the two.

The lawsuit said Custodia filed for a master account with the Federal Reserve in October 2020 and forwarded a copy of its business plan to the Federal Reserve Bank of Kansas City for its review even earlier, in May 2020.

A Kansas City Federal Reserve official told Custodia in early 2021 there should be no problem with Custodia’s application, but then progress on the application stopped, the lawsuit said.

“Upon information and belief, the Kansas City Fed’s consideration and impending approval of Custodia’s application was derailed when, in spring 2021, the (Federal Reserve Board) asserted control over the decision-making process,” it said. “The result is that Defendants have failed to meaningfully consider—let alone decide—Custodia’s long-pending application.”

The master account would make it easier for Cutodia to access the Federal Reserve to clear transactions involving U.S. dollars, the lawsuit said.

It added that the delay is a violation of the laws requiring decisions on applications to become members of the Federal Reserve system to be made within one year.

The Federal Reserve has not explained the reasons for the delay, the lawsuit said.

“Defendants’ method for reviewing master account applications largely remains a black box, with the only clear feature being bureaucratic processes amounting to the proverbial shell game,” it said.

Custodia is asking the court to issue an order requiring the Federal Reserve Board or the Kansas City Federal Reserve Bank to rule on its application for a master account within 30 days.

“Custodia asks the Court to enforce Custodia’s statutory right to have its application considered and decided in a timely manner,” the lawsuit said. “Custodia is entitled, at a minimum, to have its master account application adjudicated.”

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Avanti Becomes Second Digital Bank Approved In Wyoming

in News/banking/cryptocurrency
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By Jim Angell, Cowboy State Daily

The nation’s second bank dedicated to handling digital assets and easing transactions between digital assets and the American dollar has won approval to operate in Wyoming.

The Wyoming Banking Board voted 8-0 on Wednesday to approve the charter of the Avanti Bank & Trust, the company announced.

Avanti is the nation’s second digital asset bank to win approval to open in Wyoming. Kraken Financial won charter recognition from both state and federal regulators in September.

Like Kraken, Avanti will have the same powers as a national bank in its approved business lines and will provide several services, including dealing in its own product known as “Avit” to ease the exchange between digital currencies — such as Bitcoin — and dollars.

The bank’s primary job will be to serve as a bridge between digital asset systems and systems that rely on traditional U.S. dollars, said Caitlin Long, Avanti’s founder.

Long, a Wyoming native, was deeply involved in legislative efforts that led to Wyoming becoming the first state in the nation to develop rules to regulate “Blockchain” technology, a digital ledger system.

Her work led in 2019 to legislative approval of a bill allowing the creation of “Special Purpose Depository Institutions” for the handling of cryptocurrency transactions.

Wyoming’s work has made it the only state in the nation where banks working with both digital and traditional assets can operate, Long said in a prepared statement.

“Currently, the only type of U.S. financial institution that can provide final and simultaneous settlement of trades between digital assets and the U.S. dollar—because it is the only type currently approved to handle both within the same legal entity—is a Wyoming special purpose depository institution like Avanti,” she said. “Wyoming has the only U.S. regulator with a bank supervisory and regulatory program for digital assets that is near completion.”

Avanti’s approved products and services include the issuing of Avit and serving as a depository for for digital assets.

The company plans to begin opening commercial accounts in 2021 and will open other types of accounts with high minimum balance requirements soon after, Long said.

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