Wyoming’s Republican Senator Cynthia Lummis has accused the Federal Reserve of illegally delaying master bank applications for crypto companies Kraken and Avanti.
Wall Street Journal printed Lummis’ claims in a letter on Wednesday.
“In 2019, Wyoming began integrating digital assets, including cryptocurrency, into the US banking system,” wrote Lummis.
“State legislators wrote bills addressing issues from asset custody to money laundering. As a part of this effort, they created a heavily regulated bank — the Special Purpose Depository Institution [SPDI].”
Lummis explained that Wyoming opened discussions with the Fed “more than two years ago” to decide whether SPDIs are banks under federal law, and thus can access the federal payment system.
A federal law passed in 1994 requires the Federal Reserve to either deny or approve applications to join the federal payment system within one year of filing.
Obtaining a so-called “master account” is part of that process. They provide a record of financial rights and obligations between the account holder and the administrative reserve bank.
Master accounts also give banks direct access to Federal Reserve services such as:
- overnight loans,
- maintenance of end-of-day balances,
- and handling of reserve balance requirements.
Ultimately, approval means crypto exchange Kraken and Avanti Bank would no longer rely on other banks to hold their fiat.
The Federal Deposit Insurance Corporation (FDIC) does not insure depositors at Avanti Bank or Kraken Bank.
Lummis claimed the Fed must process applications from Wyoming-based SPDIs submitted by Kraken and Avanti. She said the Fed’s unresponsiveness “is becoming a trend.”
Federal Reserve stuck on question that isn’t serious, says Lummis
Senator Lummis has a track record of supporting cryptocurrency, particularly Bitcoin.
Lummis’ efforts to make Wyoming law amenable to crypto meant Kraken received bank charter approval in September 2020. Avanti received its charter a month later.
Those charters authorize Kraken and Avanti to function similarly to a bank that primarily deals in government-backed currencies like the US dollar.
They allow the firms to custody digital assets and serve as a bridge between digital assets and the US dollar payments system, but don’t grant “master accounts” at the Fed.
Unlike Kraken, Avanti plans to create its own stablecoin — a digital, programmable version of the US dollar called “Avit.”
The Federal Reserve says it’s still determining whether Wyoming SPDIs qualify as banks, which Lummis labelled “not a serious legal question.”
In July 2021, Kraken sent a letter to Federal Reserve Board of Governors Secretary Ann E. Misback, criticizing the proposed guidelines for evaluating requests for accounts and services.
Kraken called the rules too opaque.
“Numerous federal courts have stated that the Fed has a duty to give payment system access to all banks and credit unions conducting legal activities,” said Lummis (via WSJ, our emphasis).
“The Fed itself has said its payment services will be available ‘to all depository institutions on an equitable basis … in an atmosphere of competitive fairness.'”
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