US Court Rules in Favor of Federal Reserve, Rejects Custodia Bank Appeal

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Custodia Bank

The United States District Court for the District of Wyoming has delivered a verdict against Custodia Bank’s request for a U.S. Federal Reserve master account and has dismissed the digital asset bank’s plea for a declaratory judgment. Despite this setback, Custodia Bank has expressed its determination to explore all possible avenues in response to the ruling.

Custodia Bank’s Appeal

In a filing dated March 29, Judge Scott Skavdahl dismissed Custodia’s attempt to secure a Federal Reserve master account, which is instrumental in facilitating financial institutions’ access to the Federal Reserve’s payment systems.

Custodia Bank argued that without such an account, it would be unable to provide the same custodial services for crypto-assets as other banking institutions, placing it at a significant disadvantage. It contended that lacking a master account would relegate it to a subordinate position, dependent on and beholden to an intermediary bank.

Additionally, Skavdahl ruled that Custodia is not entitled to have the Federal Reserve Bank of Kansas City’s decision overturned, stating that Custodia’s requested writ of mandamus compelling FRBKC to issue its master account cannot be granted.

Custodia had applied for a Federal Reserve master account in October 2020, which, if approved, would grant it access to the Fedwire network, a vital component in processing numerous financial transactions. However, the Fed rejected Custodia’s membership application in January 2023, citing concerns that its involvement in the crypto space was inconsistent with the requisite legal criteria.

Custodia Bank, as one of Wyoming’s initial Special Purpose Depository Institutions (SPDIs), was established to assist businesses unable to obtain Federal Deposit Insurance Corporation banking services due to their crypto-related activities. Despite the recent setback, Custodia remains steadfast in its pursuit of avenues to address its concerns and challenges in accessing essential banking services.