Caitlin Long on Why Politics Should Stay Out of Banking

The founder of Custodia Bank discusses the future of bitcoin and banking.

After 22 years on Wall Street, Caitlin Long got intrigued by bitcoin and the blockchain in 2012. From 2018 through 2020 she served as a member of the Wyoming Blockchain Task Force, which made the Cowboy State the most welcoming for blockchain companies.

Long is the founder and CEO of Custodia Bank, a bitcoin-focused "full reserve" bank proposing to keep 108 percent of customer deposits on hand. The Federal Reserve has denied its application for membership, claiming that "the firm's novel business model and proposed focus on crypto-assets present significant safety and soundness risks." Custodia is currently challenging that decision. Reason's Zach Weissmueller interviewed Long about the ongoing lawsuit and the future of bitcoin in May, at the Bitcoin 2023 conference in Miami.

Q: Why did you start Custodia Bank?

A: The proposal was to be a 100 percent reserve bank that would keep all of our cash at the Fed. Basically, a pure service provider. There's no reason why your bank needs to be a counterparty.

It's just like the law of bailment, which is how a valet parking works or a coat check. When you park your car, you're not turning legal title to your car over to the garage. And if the garage happens to go bankrupt while your car is parked there, you can still get your key and drive your car away. Let's just turn this into a basic money warehouse to the maximum extent possible within the law.

Q: Why were you seeking a master account with the Federal Reserve?

A: We wanted to be able to keep cash directly at the Fed. Like any depository institution, federal law says the Federal Reserve shall provide services to depository institutions.

We actually did apply for FDIC insurance and they were not interested in anything related to digital assets. And as I've said before, I agree with them. We saw how fast the money can move in the digital asset world. The traditional banking system is not set up for that yet. I mean, holy cow, just online banking movement is enough to take down a bank in today's day and age. Crypto moves so much faster than traditional payment rails.

Q: What was your reaction to the Fed denying your application?

A: We were blindsided. We had been making a lot of progress with the Fed. And then something clearly changed.

Q: Wyoming approved your charter but the Fed is basically vetoing that. What worries you most about a future where banking becomes more nationalized?

A: The degree of control that the federal government has tried to exert. Cleaning up fraud is not political. Banking should not be political either. We—we collectively, all the people—should not be using the banking system as a political hammer. And it shouldn't be against abortion clinics as much as it shouldn't be against oil and gas companies. Either side should stay out of this.

We should just let financial services happen and fight out the policy fights in the legislatures, including Congress at the federal level. But the bureaucrats in Washington discovered that they had power they didn't know they had.

This interview has been condensed and edited for style and clarity.

Comments

[flag58]

How can a crypto bank keep deposits at the fed?
They only deal with currency.

[n00bdragon]

I was wondering this as well. If you want to keep deposits in whole, just store them in dollars. I don't understand why anyone would be confused that converting people's deposits into bitcoin would get you rejected by the fed.

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[Libertariantranslator]

The Fed discounts commercial paper and deals with gold and legal tender. Christian National Socialists cannot find anyone else to blame for bank failures caused by mystical sumptuary legislation (1907, 1929, 1931, 1987, 2008...), so they unload on the Fed for which a Democratic President signed the bill into law.

[EISTAU Gree-Vance]

Uh huh. And then what happened, old timer?

[Honest Economics]

Good interview. She is correct, of course. We should endeavor to expand her point to keep government out of all areas of economic life.

https://honesteconomics.substack.com/

[But SkyNet is a Private Company]

O thing about ESG? Keep those politics out

[damikesc]

I thought "MUH PRIVATE COMPANIEZ!!" can do whatever they wish.

[mad.casual]

We—we collectively, all the people—should not be using the banking system as a political hammer. And it shouldn’t be against abortion clinics as much as it shouldn’t be against oil and gas companies.

Get fucked with your boaf sidez, the side with the defensive knife wounds is equally bad to the implementing death by a stab wounds as policy, bullshit.

We spend tax dollars and send aid to abortion clinics. We specifically have ESG investment initiatives as policy among the largest brokerages and mutual funds. When SCOTUS overturned Roe, JPMorgan, BOA, Wells Fargo, and Goldman Sachs all said they were going to expand their health coverage to cover abortion. They’re also the same banks alleged to have colluded in a/the ESG investing scheme. Even outside the big banks, SVB was notoriously left on both issues.

You aren’t a libertarian. You’re a leftist hoping that if you wear a bitcoin shirt to an interview, no one will see that you’re full of shit.

[JesseAz]

This. Accurate summary.

[sarcasmic]

"You aren’t a libertarian. You’re a leftist hoping that if you wear a bitcoin shirt to an interview, no one will see that you’re full of shit."

And you're a poopy-headed poop-head who has poop for a head.

[Libertariantranslator]

Let's be fair! He may not know a shelter half from an entrenching tool, but I'm sure the looter's motives are altruistic.

[Foo_dd]

no no.... when my side uses the banking system as a political hammer, that is totally cool. it is only bad when the other team does it. why, oh why, can't people just pretend my side is perfect and does nothing wrong?

pathetic brainwashed tribal piece of shit.

[sarcasmic]

Anyone who criticizes Republicans is a leftist. Doesn't matter if they criticize both sides while they're at it. They're still a leftist. That's because the world is divided into two political tribes: Republicans and leftists. So if you're not a Republican...

[Libertariantranslator]

That is the altruist Venn diagram. Altruists are either mystical racial collectivist fanatic looters (christian, mohammedan, sikh, aum, landover, caudillo fascist, nationalsocialist, prohibitionist) OR they are materialist predestination looters (communist, anarchist, socialist, nationalsocialist, holy imperialist). These overlap as there are communist prohibitionists and fascists who want to leave one stone unnationalized. What there isn't in the overlapping Left&Right circles is freedom from coercion. That's Thoughtcrime!

[n00bdragon]

Because the major political parties in America have completely abandoned being "for" anything and have 100% converted into being about what they are "against". It doesn't matter if you agree on 90% of things. It is the 10% you disagree on which makes you untouchable. And if you should point out that the leaders of one movement or the other are not particularly sinless themselves with regard to that 10% you will only be confronted that the leaders may not be great but it's far better than what THE OTHER SIDE is doing.

Everything MUST be relative, because otherwise the enemy will win, and when the enemy wins that means you lose. The parties have nothing to provide except fear of each other.

[Minadin]

Let's see an example of the right or conservatives using the banking system to financially punish their political opponents, first, before we 'boaf siiedz' this issue.

[n00bdragon]

Wait, are you telling me the head shops can't keep their money in the bank because the liberal left is persecuting them?

[Minadin]

In part, yes. Though I think that's more of a philosophical issue than a political one. A majority of people on the right favor decriminalization of weed at the federal level, and de-regulation of banking in general, so, what's holding it up? When was the last time the left campaigned to de-regulate anything?

All they would have to do to free up the banking is to de-schedule it as a narcotic. Which they should have done a long time ago, as it's not met the legal definition, and been known to not meet it, for a while now. This could actually probably be legally accomplished by executive order (as opposed to say, student loan forgiveness), but could also be passed by congress, as in, say, Nancy Mace's (R-SC) bill, which is completely opposed by all Democrats.

https://www.marijuanamoment.net/republican-lawmakers-file-bill-to-tax-and-regulate-marijuana-as-alternative-to-democratic-proposals/

[mad.casual]

Also, it's a bit of a goalpost shifting.

We didn't get "it shouldn't be against churches, abortion clinics, gun shops, head shops, cake shops, coffee shops, or malt shops", we got "It shouldn't be used against abortion clinics or against companies that run afoul of ESG policies." like the two are analogous acts or rights or just two different flavors of the same serving of ice cream.

Whether she misspoke or misunderstands the situation is not able to rightly be discerned, nor is it beyond reproach. Defending the misstatement/misunderstanding without clarification strongly suggests that the defender, independent of Long, agrees, believes, or doesn't generally care to distinguish between abortion and emitting CO2.

[JFree]

A majority of people on the right favor decriminalization of weed at the federal level, and de-regulation of banking in general, so, what’s holding it up?

What’s holding it up is that that statement is not true to begin with.

They may opine that pot should be decriminalized at the federal level but they tend to vote for pols who want to keep it criminal at the federal level. Esp in those states where recreational pot is not legal at the state level.

I applaud Mace for voting for the Safe Banking Act of 2021. That’s the one that actually passed the House with 106-101 R’s and 215-0 D’s. That’s the one that will be voted on in the Senate and which currently has 43 co-sponsors – 31 D, 8 R, and the 3 I. But what that means is that Schumer is not really the one blocking that one. There are an additional 9 D’s (incl Schumer) and 3 R’s who aren’t sponsoring and who are from states that are legal. Meaning that the real opposition to banking reform when it comes to pot is from the 7 D’s and 38 R’s who are from states where rec pot is illegal.

[But SkyNet is a Private Company]

Yes. That was Obama

[raspberrydinners]

Or you can keep all that dumb bullshit as far away as possible from actual currency.

We've already seen the stupid effects that people dumping crypto can do to *actual* currency and influencing bank runs. We don't need your magic fairy shit dust to affect people's actual currency and the stability of the economy.

Wanna use crypto? Fine- use ONLY crypto. Good luck, have fun.

[Beezard]

You mean like when the SEC or Liz Warren specifically target and torpedo currencies and alt coins that people have already invested billions in, specifically so that will happen? And then potentially award an EFT to Black Rock 5 seconds later?

Or do mean more like when the SEC lets crooked dealings go on until it collapses because it funds the DNC and because the chairman’s daughter is a big wig in the company like FTX?

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[A Cynical Asshole]

We should just let financial services happen and fight out the policy fights in the legislatures, including Congress at the federal level.

That would require legislatures to actually do their jobs. Much easier to just let unelected bureaucrats do whatever the fuck they want.

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[Diane Reynolds (Paul.)]

*ctrl-f farag 0/0*

Amazing we can get through an entire article about politics staying out of banking and the Nigel Farage incident doesn't even get mentioned in passing.

[mad.casual]

It’s such complete and utter horseshit otherwise as well. Pro-2A groups have been overtly targeted as part of divestment movements for 3 decades. Pro-Israel/Anti-Palestine groups have been targeted part of divestment movements for 3 decades. We have ESG literally coming off of multiple world-leader’s lips and a decade ago, “we” were trying to bring the same targets up on RICO charges.

Every major bank, upon the reversal of Roe v. Wade, committed to making abortion affordable, if only for their employees, and this hack acts like Republicans have been the ones shutting down Canadian Trucker’s GoFundMe and Patreon accounts over abortion.

[Spiritus Mundi]

Nothing about operation choke point either.

[Earth-based Human Skeptic]

"It's just like the law of bailment, which is how a valet parking works or a coat check. When you park your car, you're not turning legal title to your car over to the garage. And if the garage happens to go bankrupt while your car is parked there, you can still get your key and drive your car away."

Uh, no. When I have the valet park my car, I do not expect the garage to then rent my car out, with a good chance that the renter will drive it off a bridge and destroy the value.

[Longtobefree]

Thanks to the glorious success of Bidenomics, I can no longer afford to drive my car; let alone to a place that has valet parking!

(lovely shot a spell checkers - not recognizing Bidenomics, it suggested Biden comics. A lot the same, I admit)

[Leonremi]

interesting how you all "libertarian" nincompoops confuse politics with regulation.

[TJJ2000]

Yeah but if the Nazi-Empire didn't pass that 1913 Federal Reserve Act the citizens might actually !see! what kind of robbery/enslavement is being done on them.

It helps the blatant ignorance of enslaved citizens to hide that theft behind fake-fiat monopoly money the government can just counterfeit like nobodies business. Until one day they start printing it faster than the productive can slave-labor any value behind it.

[Leonremi]

blatant ignorance?
Do you imbecile know that nazis didn't even exist in 1913 ?

[TJJ2000]

Nazism, also spelled Naziism, in full National Socialism.
https://www.britannica.com/event/Nazism

Are you really trying the sell the idea that [Na]tional So[zi]ialism never existed until Adolf Hitler and the German Nazi's??

[TJJ2000]

… Or should I say to the very point the German Nazi’s and their Hitler leader took over Germany completely through “democracy” and cheating? Do you think only German citizens can be Nazi’s just because they were the 1st to coin the abbreviation Nazi for [Na]tional So[zi]alist.

[Bill Falcon]

Govt should stay out of banking..i.e. End the Fed.

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