On January 27, 2023, the Federal Reserve Board (FRB) announced that it has denied the application of crypto-focused Custodia Bank, Inc., a Wyoming-chartered special purpose depository institution (SPDI), to become a member of the Federal Reserve System (Fed). According to the FRB's recorded board votes, no members voted in support of Custodia's application and no members abstained. On March 24, 2023, the FRB published its order of denial.

According to the announcement, Custodia does not offer federal deposit insurance and proposes to engage in "novel and untested" crypto activities including issuing a crypto asset on open, public and/or decentralized networks. Custodia's website notes that it services US-based business customers such as digital asset businesses, fintechs, banks, corporate treasurers, trusts, pension funds, start-ups, and other parties.

The FRB's announcement stated that Custodia's application, as submitted, is not consistent with the factors the FRB is required to evaluate by law. According to the announcement, Custodia's risk-management framework is insufficient to address concerns regarding the heightened risks associated with its proposed crypto activities, including its ability to mitigate money laundering and terrorism financing risks.

The FRB application decision follows a June 7, 2022 action brought by Custodia, in which it sought to compel action on its application for a Federal Reserve master account, including access to FedWire, the Federal Reserve's payment system. On November 11, 2022, the US District Court for the District of Wyoming issued an order granting in part and denying in part a motion to dismiss filed by the FRB and the Federal Reserve Bank of Kansas City and allowed most of Custodia's claims to proceed regarding the application delay.