Custodia CEO slams Fed policy for giving big banks preferential treatment in stablecoins

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Custodia Bank CEO Caitlin Long accused the US Federal Reserve of quietly maintaining anti-crypto policies that favor large banks while presenting an appearance of regulatory easing.

Long criticized the Fed for rescinding several restrictive crypto policies last week while keeping in place a key rule from January 2023 that blocks banks from directly engaging with crypto.

She warned that the move would create an unfair advantage for major banks seeking to issue private stablecoins while stifling innovation on private networks.

Feds crypto policy

In a detailed post on social media, Long argued that although the Fed rolled back four pieces of guidance, it deliberately kept a critical policy intact. The policy prohibits banks from holding cryptocurrencies for their own accounts, even to cover small blockchain transaction fees.

It also bars banks from issuing stablecoins on public blockchains like Ethereum (ETH), instead favoring permissioned, private networks typically operated by large financial institutions.

Long said:

The Fed definitely won on PR spin.

She added that the central banks April 24 announcement listed every piece of guidance it rescinded but made no mention of the rule it left untouched. She further explained that the remaining policy severely limits banks ability to offer crypto custody services.

Under current rules, banks are unable to pay fluctuating gas fees out of pocket when processing on-chain transactions, a technical barrier that undermines their ability to serve digital asset clients efficiently.

Private blockchains and regulatory control

Longs criticism comes amid growing concerns that the Fed is promoting private blockchain solutions controlled by major banks, while slowing the adoption of decentralized, public blockchain networks.

She warned that this strategy could entrench big-bank dominance over emerging stablecoin markets, giving them a head start while other institutions await new federal stablecoin legislation.

Meanwhile, Senator Cynthia Lummis recently echoed Longs concerns and criticized the Feds latest rollback as just lip service.

Lummis argued that the central bank continues to wield reputational risk warnings to restrict banks from engaging with Bitcoin and other digital assets, labeling them unsafe and unsound.She vowed to continue holding Fed Chair Jerome Powell accountable, warning that many architects of past crackdowns still influence policy today.

Despite President Donald Trumps administration making efforts toward a broader push for a more crypto-friendly environment, Long and Lummis contend that federal regulators remain resistant to full-scale blockchain innovation.

Read more: https://cryptoslate.com/custodia-ceo-slams-fed-policy-for-giving-big-banks-preferential-treatment-in-stablecoins/

Text source: CryptoSlate

Banking Featured Regulation Stablecoins Written by Assad Jafri On Mon, 28 Apr 2025 Disclaimer: Financial information and news are not financial advice, read the disclaimer. Buy & sell Crypto in minutes

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