Crypto Bank Custodia Suffers Another Court Rejection in Fed Master Account Pursuit

Crypto bank Custodia, founded by Caitlin Long, can still not access the payment rails of the Federal Reserve after an appeals court reached its effort of years to obtain a so-called “master account” with the central bank of the United States.

The 10th Circuit Court of Appeals ruled on Friday that the Wyoming special depository institution could not compel the Fed to grant access to the master account, affirming a judgment of the lower court against Custodia last year.

“We conclude that the plain language of the relevant statutes grants discretion to Federal Reserve Banks to deny master account access requests from eligible entities and, therefore, we reject the Custody’s attempt to compromise the Fed’s ability to safeguard our nation’s financial system by exercising discretion to deny master account access,” the ruling said.

Custodia sued the Federal Reserve in 2022, initially arguing that the Fed was taking too long to evaluate his application for a master account and later modify the suit after the Fed rejected his push for an account. Custodia argued that the Fed he did not have the legal capacity to reject a request for a master account.

A federal judge ruled against Custodia last year, declaring that the Fed was not required to grant every eligible depository institution a master account. The company appealed shortly after, and a panel of three judges heard arguments from last January’s games.

In a statement posted to XCustodia said, “while we were hoping for a victory at the [10th] Circuit today, we received the next best – a strong dissent.”

Throughout the process, Custodia argued that the language of the laws governing master accounts means that the Fed has no choice but to grant access to the account to any eligible depository institution. Many judges now disagree with this interpretation.

Friday’s ruling pointed to both the governing legislation around the Fed and an amendment by former Sen. Pat Toomey (R-Pa.) that all said the Fed has discretion in these matters, Judge David Ebel’s opinion said.

Custodia had also tried to argue that the Federal Reserve Bank of Kansas City, which would be his supervisory entity, had illegally coordinated with the Board of Governors of the Federal Reserve and the administration of former President Joe Biden to reject his application. Both the district court and the appeals court said they did not find these claims compelling.

“Custodia indicates nothing in the record that would allow us to conclude that it was not FRBKC that made the final decision on the application of Custodia’s master account in this case,” the filing said.

Custodia has an option to request a retest from the [10th] Circuit, and we are actively considering this,” the company said in its statement.

While the Federal Reserve has not formally made any move to allow crypto depository institutions direct access to a master account, Fed Governor Chris Waller suggested in a recent speech that the central bank could design a “thin master account” that crypto companies and similar types of companies could tap to access the Fed’s payment rails, without opening the Fed to wider systemic risks.

Read more: Governor Waller: US Fed to ‘Embrace Disruption’, Introduces Idea of ​​’Skinny’ Master Account