Custodia Bank Goes Live: Bridging Digital Assets With US Dollar Payments

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Custodia Bank, the financial institution that aims to bridge digital assets with the U.S. dollar payment system, is now live. Last month, Custodia started serving external business customers in select U.S. states, offering U.S. dollar deposits and government money market fund services, with bitcoin custody pending launch. The launch comes after overcoming regulatory pressures and challenges with the Federal Reserve Board.

Custodia Bank Debuts Services

Many crypto and narrow banking proponents have awaited the arrival of Custodia Bank, a financial institution that is tech-forward and customer-centric. “We’re grateful to our partners, who appreciate our approach of complying with banking laws and regulations; to Wyoming for its enabling laws; to our team and investors; and to the law-abiding digital asset industry,” said CEO Caitlin Long. Custodia says the bank’s regional bank-style risk management program, along with its dedication to following regulations, sets it apart from competitors.

Services now available include U.S. dollar deposits and U.S. government money market fund services, tailored to U.S.-based business customers. This includes digital asset businesses, fintechs, banks, corporate treasurers, trusts, pension funds, and start-ups. The bank’s strategy is to eventually serve customers worldwide, providing enhanced regulatory clarity and minimized transactional risk with its unique reserve model.

Custodia operates under the first special purpose depository institution (SPDI) legal and regulatory framework in the United States. This approach allows the bank to offer a full suite of financial services for both U.S. dollars and digital assets. Demand deposit accounts are protected under a 100% reserve requirement, and the bank offers API solutions for programmable accounts, payments, settlement, and future custody products, Custodia’s website discloses.

Custodia Bank’s journey to this point has been marked by challenges. In December, they informed the U.S. Federal Reserve of their intention to complete a specific task list and followed through despite it no longer being required. Independent reviews, new partnerships, and the development of new services to meet market needs were all part of the process, Custodia detailed on Friday.

In January 2023, the Federal Reserve Board issued a denial for Custodia’s application to become a member of the system, citing “significant safety and soundness risks” related to crypto assets and an insufficient risk management framework. The denial reflected broader regulatory skepticism towards digital assets and narrow banking techniques. However, Custodia’s perseverance and alignment with Wyoming’s innovative legal framework for SPDIs have allowed them to navigate these challenges and emerge as a regulated bank.

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