Federal laws do not require the Federal Reserve to give every eligible institution a master account, U.S. District Court Judge Scott Skavdahl ruled Friday.
The judge sided with the Fed and ruled against Wyoming-based Custodia, adding that the digital-asset bank failed to prove that the Fed’s board of governors had undue influence on the Kansas City Fed — something the bank suggested — in its application denial.
"[U]nless Federal Reserve Banks possess discretion to deny or reject a master account application, state chartering laws would be the only layer of insulation for the U.S. financial system," Skavdahl wrote.
"And in that scenario, one can readily foresee a 'race to the bottom' among states and politicians to attract business by reducing state chartering burdens through lax legislation, allowing minimally regulated institutions to gain ready access to the central bank's balances and Federal Reserve services," he wrote.
Custodia sued the Fed after its application for a master account, which would have given it instant access to services like wire transfers directly from the central bank, was denied in January 2023.
Legal challenges between the Fed and Custodia began in 2022, when the Wyoming bank accused the Fed of not providing a timely decision on its application to join the Federal Reserve system, something it applied to do in October 2020.
By the time it filed its lawsuit, the bank had been waiting for 19 months — despite the Fed’s standard form agreement that states “[p]rocessing may take 5-7 business days.”
"Challenging the Fed's strong-arm tactics has always been an uphill battle, but Custodia Bank remains committed to our vision of creating a safe, tech-enabled bank," bank spokesman Nathan Miller said in an e-mailed statement on Skavdahl’s ruling. "We are reviewing the court's decision and all of our options, including appeal."
A spokesperson for the Fed declined to comment.
Custodia CEO Caitlin Long retweeted messages suggesting that Friday’s ruling “is a win for the forces behind Operation Chokepoint 2.0,” the cryptosphere’s name for a broader crackdown on crypto-bank ties. Some crypto supporters believe that the Biden administration is purposely blocking crypto’s access to banking, and though the idea wasn’t born out of last year’s regional bank failures, it boosted its popularity: Signature Bank and Silvergate Bank, both crypto-friendly, were two of the banks that shuttered in March 2023.
