Crypto bank Custodia, founded by Caitlin Long, is still unable to access the Federal Reserve’s payment systems after an appeals court rejected its long-standing efforts to obtain a “master account” with the U.S. central bank.
The 10th Circuit Court of Appeals ruled that the Wyoming special purpose depository institution could not compel the Fed to grant it master account access, affirming a lower court’s decision against Custodia last year.
“We conclude the plain language of the relevant statutes grants Federal Reserve Banks discretion to reject master account access requests from eligible entities and, therefore, we reject Custodia’s attempt to impair the Fed’s ability to safeguard our nation’s financial system,” the ruling stated.
Custodia filed a lawsuit against the Federal Reserve in 2022, initially claiming the Fed was taking too long to review its application for a master account and later adjusting the lawsuit after the Fed denied its request. Custodia argued that the Fed lacked the legal authority to reject an application for a master account.
A federal judge ruled against Custodia last year, stating that the Fed is not obligated to grant master account access to every eligible depository institution. Following the appeal, a three-judge panel heard arguments in January.
In a statement, Custodia noted that “while we were hoping for a win at the [10th] Circuit today, we received the next best thing — a strong dissent.”
Throughout the proceedings, Custodia maintained that the legal language surrounding master accounts meant the Fed had no choice but to grant access to any eligible institution. Multiple judges have disagreed with this interpretation.
Friday’s ruling highlighted the governing legislation surrounding the Fed, indicating that the Fed possesses discretion in these matters, as noted by Judge David Ebel.
Custodia also attempted to claim that the Federal Reserve Bank of Kansas City, its overseeing entity, had illegally coordinated with the Federal Reserve Board of Governors and the previous Biden administration to deny its application. Both the district and appeals courts found these claims unpersuasive.
“Custodia points to nothing in the record that would allow us to conclude that it was not FRBKC who made the final decision on Custodia’s master account application,” the court stated.
“Custodia has the option to petition for a rehearing by the [10th] Circuit, and we are actively considering that,” the company mentioned in its statement.
While the Federal Reserve has not made formal moves to allow crypto-friendly depository institutions access to a master account, Fed Governor Chris Waller hinted recently that the central bank could create a “skinny master account” for crypto firms and similar businesses to access the Fed’s payment systems without introducing broader systemic risks.
Read more: Gov. Waller: U.S. Fed to ‘Embrace Disruption,’ Pitches ‘Skinny’ Master Account Idea
Leave a Reply