Avanti already has a special purpose bank charter in Wyoming, but they want more. The digital-asset-focused organization is applying to become a Federal Reserve member bank. If granted, Avanti will be subject to the “very same regulatory capital, compliance and supervisory examination standards that apply to traditional banks.” That goes in line with how they define themselves. In the official statement that Avanti sent to the press, they claim that purpose is “to serve as a compliant bridge to the U.S. dollar payments system and a custodian of digital assets that can meet the strictest level of institutional custody standards.”
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And they’re very confident about their chances.
“Avanti meets the requirements for both membership and payment system access, and with this latest application, Avanti becomes the first digital asset bank to seek formal regulation by the Federal Reserve in addition to its existing regulator, the Wyoming Division of Banking.”
But, do they really have a chance of becoming a Federal Reserve member bank? Or is there resistance?
Why Does Avanti Want To Become A Federal Reserve Member Bank?
For a straight answer, we have to go to the Wall Street Journal article that confirmed Avanti’s plans. The WSJ says:
“The companies include Avanti Bank, which aims to provide custody services for institutional investors in cryptocurrencies, and Kraken, a cryptocurrency exchange platform. They say direct access to the Fed’s payment systems would allow them to more quickly and cheaply process orders from customers buying and selling digital assets. Currently they must partner with traditional banks that have accounts with the Fed.”
However, in Avanti’s own explanation we can find other clues, assertions, and secondary reasons:
“By applying for Federal Reserve membership, Avanti is formally accepting what it had already informally accepted, which is the very same regulatory capital, compliance and supervisory examination standards that apply to traditional banks. By approving this application, the Federal Reserve would open a pathway to its oversight of Avanti and other compliant actors in the digital asset industry that wish to meet the same requirements.”
How Are Traditional Banks Reacting To Avanti ‘s Plans?
This part is key to the whole Avanti story. Again, the Wall Street Journal points us in the right direction:
“It is reasonable to expect that such applicants will pose heightened risks regarding matters of anti-money-laundering, cybersecurity and consumer protection, as well as safety and soundness,” the Bank Policy Institute, which represents large banks, and the Independent Community Bankers of America wrote in a letter to the Fed last month.
But it’s by looking into said letter to the Fed, that we find about the level of involvement that the Independent Community Bankers of America is looking to get.
“We also believe that the state banking agencies and supervisors have an important role to play in the supervision of novel chart applicants to Reserve Bank accounts and services that are state-charted. Further, we agree with the board that, when applying the account access guidelines, the Federal Reserve should incorporate the assessment of an institution by its state supervisor(s) into its independent assessment of the institution’s risk profile.”
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Caitlin Long’s Response To Traditional Banking
In a Twitter thread confirming the announcement, Avanti’s CEO Caitlin Long took aim at her colleagues. “Ironically, the bank industry’s lobbyists keep saying crypto needs to be subject to higher standards than traditional banks. But their own banks are now getting into crypto too, and so it’s really funny to watch the bank lobbyists tie themselves in knots.”
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And she makes a good point, there. Who should supervise whom? According to Long, her colleagues are consulting her about future crypto-related services. And they work for the same banks that are working to “slow down” Avanti ‘s “regulatory process.”
6/ And, even funnier–my pals at various banks keep calling to ask for my help with #crypto, while at the very same time their own lobbyists are attacking us with falsehoods & trying to slow down our regulatory process. Hypocrisy much??!!🤪🤦♀️
— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) August 28, 2021
One last shot, Caitlin Long finishes by saying “I learned something from this tweet” by the author of the Wall Street Journal’s article:
This issue split the Fed and OCC in late 2020/early 2021, when Fed signaled it wouldn’t grant payment system access to OCC trust banks. OCC briefly discussed the idea of suing the Fed over this. Now senior Fed staffers run the OCC. https://t.co/S7jJ4X2LiL
— Andrew Ackerman (@amacker) August 28, 2021
Does Avanti have a shot at becoming a Federal Reserve member bank? The jury is still out.
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