Custodia To File Appeal Over Denied Access To Fed Master Account

Custodia Bank has officially expressed its desire to appeal the US District Court ruling in Wyoming, which supported the decision of the Federal Reserve Bank of Kansas City (FRBKC) to deny the crypto bank a master account. This move is part of Custodia’s continued efforts to secure direct access to the Kansas City Fed’s payment systems, which it deems crucial for the growth of its operations.

Custodia’s Legal Struggle With The Federal Reserve

The appeal by Custodia marks the latest development in a prolonged legal battle that began when the Wyoming-based crypto bank first applied for a master account with the Federal Reserve Bank of Kansas City in 2022. This account would enable Custodia to bypass intermediary banks, positioning it directly within the federal financial network.

After experiencing extensive delays, Custodia sued the Federal Reserve Board of Governors and the FRBKC in 2022, arguing that the Kansas City Fed unlawfully postponed the processing of its application. The bank then refiled the lawsuit after the FRBKC officially rejected its master account application in January 2023.

On March 29, 2024, US District Court Judge Scott Skavdahl ruled against Custodia, highlighting the Federal Reserve Banks’ discretionary power in granting or denying master accounts, essential for direct engagement with the U.S. financial system. Judge Skavdhal stated,

Federal laws do not require the Federal Reserve to give every eligible institution a master account.

Furthermore, he highlighted the dangers of a regulatory “race to the bottom,” where states might reduce oversight to attract businesses, potentially leading to “minimally regulated institutions to gain ready access to the central bank’s balances and Federal Reserve services.”

In response, Custodia appears resolute in its desire to obtain a master account with the FRKBC and has now filed a notice to appeal Judge Skavdhal’s decision to the US Tenth Circuit Court of Appeals. Thereafter, the appellate court will reveal the case and request both parties to submit their arguments before making a decision, which could affirm or change the lower court’s ruling.

The Crypto Community Sits Tight

The ongoing court case between Custodia, the Kansas City Fed, and the Federal Reserve Board of Governors is likely to have significant implications for the adoption of cryptocurrency in the global financial scene. While the US regulators worry about the heightened risks digital assets present to users and investors,  Custodia believes that these assets provide value safety, especially in a time of massive advancements in technology.

Custodia states that in this period of “rapidly improving technology,” it offers a banking model that can adequately serve rapidly developing industries and provide a hedge against bank runs, which is common in the traditional finance sector. The crypto bank remains committed to its cause and has begun exploring all legal means against the “Fed’s strong-arm tactics”

As legal proceedings continue, the financial industry and cryptocurrency companies await the implications, which could set significant precedents for integrating digital asset institutions into the US banking system.