Custodia Bank’s Federal Reserve Battle: Navigating Legal Setbacks
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Understanding Custodia Bank’s Legal Quest for a Federal Reserve Master Account
Custodia Bank, a leading figure in the cryptocurrency banking sector founded by Caitlin Long, is facing significant legal challenges. The Wyoming-based bank recently encountered another judicial hurdle in its pursuit of a Federal Reserve master account, following an unfavorable appeal ruling. This decision comes after an earlier court rejection in March 2024.
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Appeals Court Sides with Federal Reserve in Custodia Bank Case
In 2020, Custodia Bank submitted an application to the Federal Reserve Bank of Kansas City (FRBKC) with the objective of securing a master account. This account would provide the bank with direct access to the Federal Reserve’s payment system, eliminating the need for intermediary banks. Despite these efforts, the application was denied in 2023 due to concerns over banking practices, as stated by the FRBKC.
Custodia had previously initiated a lawsuit against the Federal Reserve in 2022, accusing the regulator of delaying its application unlawfully. Following the rejection, Custodia legally contested the decision in March 2024, asserting that the central bank did not have the legal authority to refuse its application. The bank further alleged possible collusion between the Federal Reserve Board of Governors and the Kansas City Fed in orchestrating the rejection.
Judge Scott Skavdahl of the US District Court for the District of Wyoming dismissed Custodia’s claims, ruling that federal law does not obligate the Federal Reserve to approve a master account for every eligible institution. The judge emphasized that the Fed has significant discretion in approving or denying such applications.
In April 2024, Custodia appealed to the 10th Circuit Court of Appeals. After nineteen months, the appellate court upheld the lower court’s decision, reinforcing the Federal Reserve’s discretion in the matter, irrespective of eligibility. The ruling stated that the relevant statutes grant Federal Reserve Banks the discretion to grant or deny master account requests. Consequently, Custodia is not automatically entitled to a master account, affirming the district court’s ruling in favor of the defendants.
Future Prospects for Custodia Bank
In light of the recent court ruling, Custodia Bank has indicated the possibility of petitioning for a rehearing, citing a compelling dissenting opinion from one of the appeals court judges. The bank’s statement highlighted the presence of serious constitutional questions about the Federal Reserve, noting a split among the Tenth Circuit judges on this issue. Custodia is actively considering a petition for rehearing at the Tenth Circuit.
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