FED Chair Defended Blocking Kraken And Wyoming Crypto Banks

FED chair defended blocking Kraken and Wyoming crypto banks as Jerome Powell offered some explanations so let’s read more about them in today’s cryptocurrency news.

Senator Cynthia Lummis accused the FED of shutting out Wyoming crypto banks but the FED Cair defended blocking the banks giving some “good arguments.” Powell also defended the decision not to process Kraken’s application. The FED Chair Jerome Powell defended the central bank policy of denying accounts to Wyoming’s upstart banks citing their novelty and precedential nature. Powell’s comments that he made during a Senate hearing on whether he should be reconfirmed due to the growing frustration in Wyoming over the central bank’s treatment of crypto companies such as Avanti and Kraken.

These companies are among the few of the crypto businesses that relieved a green light under Wyoming law to become the Special Purpose Depository Institutions which is a new type of financial entity that is able to transact in crypto while performing traditional banking services. In order for these SPDIs to start banking operations, they require master accounts at the Federal Reserve which banks then use to arrange payments with the central bank and to conduct settlements with other financial institutions.

While Kraken and Avanti recieved SPDI charters from Wyoming back in 2020, the FED refused to process their master accounts applications which is a decision Senator Cynthia Lummis deems unfair and illegal:

“I’m terribly concerned about the manner in which Wyoming’s SPDIs are being treated by the Federal Reserve.”

Lummis cited legal precedent to claim that the FED doesn’t have the discretion to deny the master accounts to SPDIs and accused it of a strategy of both denying by delay and starving the applicants “until they die.” Powell responded by saying that the FED studied the SPDI applications closely and that there are good arguments for treating them as eligible to receive the accounts. Powell suggested that the central bank had many concerns about allowing Kraken and Avanti to join the banks as FED customers noting that the SPDI model expands rapidly with the implications for the broader financial system:

“If we start granting these, there will be a couple hundred of them soon. They’re hugely precedential, which is why I’m taking my time on this.”

Lummis noted that the Federal Reserve sat on these applications for more than a year and was slow to communicate with the crypto banks. As the FED chair defended their stance, Powell’s reappointment is not assured as plenty of Senate members already stated they support him because they regard him as more moderate than other candidates.