Custodia Bank Founder Slams Fed's Stablecoin Policy in Favor of 'Big Banks'

Source: Cointelegraph Original text: "Custodia Bank founder criticizes Federal Reserve's stablecoin policy favoring 'big banks'"

Caitlin Long, the founder and CEO of Custodia Bank, criticized the actions of the Federal Reserve. She pointed out that although the Federal Reserve has relaxed the rules for banks' cryptocurrency collaborations, it still secretly maintains an anti-cryptocurrency policy that favors large banks in issuing stablecoins.

Long explained in a post on platform X on April 27 that although the Federal Reserve recently revoked its previous four cryptocurrency guidelines, it still retains the statement coordinated with the Biden administration released on January 27, 2023.

According to Long, the guideline prohibits banks from directly participating in cryptocurrency asset businesses and does not allow them to issue stablecoins on permissionless blockchains.

"The Federal Reserve has maintained a regulatory preference for permissioned stablecoins (i.e., the big bank version)," Long said.

She warned that while the broader market waits for Congress to pass stablecoin legislation, this move has given traditional financial institutions a "first-mover advantage" in issuing private stablecoins.

Long said that once the federal stablecoin bill becomes law, it could overturn the Fed's position. "Congress should move faster," she urged.

Apart from stablecoins, Long pointed out that the Federal Reserve's policies have hindered banks from entering the cryptocurrency market as major participants, preventing them from providing market-making services for assets like Bitcoin (BTC), Ethereum (ETH), or Solana (SOL).

She also mentioned that banks face operational challenges when providing cryptocurrency custody services, particularly regarding gas fees for transactions on the payment chain—this is a standard practice for cryptocurrency custodians but is restricted under the current Federal Reserve rules.

Summarizing his concerns, Long believes that the Federal Reserve's decision is, on one hand, continuing to hinder banks from entering the crypto custody business, while on the other hand, promoting a licensed stablecoin backed by large financial institutions.

"The Federal Reserve has indeed achieved victory in public relations - its press release lists a long string of rescinded guidelines but makes no mention of the guidelines that are still retained. This understandably misled many smart people," she wrote.

Wyoming Senator Cynthia Lummis has also joined the criticism. As an active supporter of digital assets, Senator Lummis condemned the Federal Reserve's actions as merely "words without action," suggesting that there may be legislative pushback in the future.

Lummis mentioned that the Federal Reserve still views Bitcoin and digital assets as "unsafe and unsound" assets in its 9(13) policy statement, which has not been revoked to this day.

However, other executives in the cryptocurrency industry have a positive attitude towards the Federal Reserve's announcement. Michael Saylor from Strategy tweeted on April 25 via the X platform that the Federal Reserve's move means "banks can now freely start supporting Bitcoin."

Related: Senator Lummis: The Federal Reserve's withdrawal of cryptocurrency bank regulatory rules "is not a real advancement"