Custodia Bank’s Federal Reserve Bid Rejected by Court

Custodia Bank faced a ruling from the Wyoming court, which determined that it is ineligible for a Federal Reserve master account.

A Wyoming court ruled against the lender, ruling that Caitlin Long’s Custodia Bank is not eligible for a Federal Reserve master account.

In a summary judgment on March 29, Judge Scott W. Skavdahl found that Custodia Bank lacks statutory entitlement to a master account and will not receive a writ of mandamus to obtain one.

Custodia had maintained that the Federal Reserve Bank of Kansas City (FRBKC) was required to offer a master account simply by virtue of qualifying to apply for one. The regulator countered that it has the right to refuse requests at its exclusive discretion.

The judge concluded that the clear text of the specific law Custodia cited supports FRBKC’s argument. He pointed out that the law makes no mention of master accounts and does not require the Fed to make them available to all depository institutions that qualify.

Rather, the relevant portion of the law aims to guarantee that some services are accessible to depository institutions that are members and those that are not, but not all depository institutions. Additionally, the same provision establishes an equal price schedule for both types of institutions.

Custodia is unable to contest

The Board of Governors has not yet submitted a final agency judgment on the subject, as the judge further pointed out. Custodia Bank contended that a specific email, in which the Board of Governors declared that it had “no issues” with FRBKC rejecting the account, meets the criteria for being a final agency ruling.

In order to comply with Wyoming law, the Board of Governors successfully argued that the message did not meet the legal requirements for a final agency decision.

The bank was unable to demonstrate that the action was a final agency decision; hence, the court was ruled to lack jurisdiction to consider Custodia’s allegations.

Custodia answers

FOX Business reporter Eleanor Terret reportedly obtained a statement from a Custodia Bank representative stating that the company will decide on its next course of action after considering the verdict.

The spokesman went on to say:

Challenging the Fed’s strong-arm tactics has always been an uphill battle, but Custodia Bank remains committed to our vision … .”

Custodia Bank markets itself as a business-focused digital asset payment and custody solution.

Custodia’s cryptocurrency activities have nothing to do with the present master account matter, but in a related application to join the Federal Reserve system, the Fed raised concerns about Custodia’s cryptocurrency focus.

The Board of Governors and the Federal Reserve Bank of Kansas City rejected Custodia’s application for membership and a master account on January 27, 2023.