The United States District Court in Wyoming has ruled against Custodia Bank’s plea to own a Federal Reserve master account. The court also dismissed the bank’s plea for a declaratory judgment. However, the bank remains adamant and would seek out every possible option available.
Custodia Bank denied a Federal Reserve master account
In a filing dated March 29, Judge Scott Skavdahl ruled against Custodia Bank’s bid to own a Federal Reserve master account. This account is known as the bank account for banks and aids financial institutions in gaining access to the payment systems of the Federal Reserve.
In its argument, Custodia Bank said that without this account, it won’t be able to offer custodial services for digital assets like other financial institutions, placing it at a disadvantage. However, its spokesperson has noted that the bank is revising the court’s decision and it will access all its options, including an appeal.
This shows that Custodia will consider an appeal in its unwavering quest to obtain a Federal Reserve master account. The bank highlights the need to have this account so that it will be able to carry out its financial operations without hitch. Custodia also highlighted that it would be considered a ‘second class citizen’ in the financial landscape while having to rely on an intermediary for certain transactions.
Challenges in the crypto banking landscape
In his ruling, Judge Skavdahl added that Custodia is not entitled to have the Federal Reserve Bank of Kansas City (FRBKC) overturn its decision regarding the account. The Judge’s ruling favored FRBKC, emphasizing that the request from Custodia for a writ of mandamus that compels FRBKC to issue the account cannot be approved.
The bank initially applied for a Federal Reserve master account in 2020, seeming to tap the network of Fedwire. The Fedwire network is one of the most powerful in terms of processing volumes with about 193 million transactions carried out in 2023. However, the bank encountered a roadblock when its membership application was rejected in January 2023.
In the Fed’s rejection letter, it said that the bank’s involvement in the crypto space was inconsistent with the required factors under the law. Custodia Bank is one of Wyoming’s Special Purpose Dispensory Institutions (SPDIs), which are often referred to as blockchain banks. These institutions in this bracket were founded to help businesses obtain banking services from the Federal Deposit Insurance Corporation (FDIC) because of their activities in the crypto space.
