- Custodia Bank has gained ground in its legal struggle against the Fed.
- In October 2020, Custodia applied for a master account at the Federal Reserve.
When a federal court in Wyoming rejected requests to dismiss filed by the Federal Reserve and the Federal Reserve Bank of Kansas City, Custodia Bank gained ground in its legal struggle against the Fed.
In June of 2022, the digital asset bank filed a lawsuit against the Federal Reserve over what it called an “unlawful delay” in the approval of its master account. Caitlin Long, a former executive at Morgan Stanley and an early supporter of crypto, launched the bank in 2020 so that it could provide account services to cryptocurrency businesses and act as a conduit to the US dollar.
Moreover, the court has again denied the Federal Reserve’s request to throw out Custodia Bank’s complaint. Nathan Miller, a spokesman for Custodia Bank, expressed his delight that the Fed’s effort to give itself a veto over state bank chartering decisions will finally be proven in federal court.
Granting Itself Unique Jurisdiction
In October 2020, Custodia applied for a master account at the Federal Reserve. If approved, the bank would have access to the Fedwire network, the Federal Reserve’s payment system that handled over 196 million transactions in 2022.
The bank’s engagement in the cryptocurrency sector was cited as one of the reasons the Fed rejected the membership application in January 2023. Since firms that deal in crypto can’t get banking services backed by the Federal Deposit Insurance Corporation (FDIC), SPDIs were developed to fill that need.
The state of Wyoming filed a request to intervene in the bank’s lawsuit with the Fed in April to defend its structure that permits certain cryptocurrency businesses to qualify as state-chartered banks.
Miller claims that after decades of automatically issuing master accounts to licensed banks, the Fed is now reinterpreting federal statutes to give itself unique jurisdiction that it never got from Congress. Moreover, Miller proceeded by saying that the Wyoming Division of Banking turned down more than 150 other banks before awarding Custodia its bank charter.
