Custodia Bank Triumphs Over Fed's Dismissal Motion
The ongoing legal face-off between Custodia Bank and the Federal Reserve takes an interesting turn, with a Wyoming federal judge refusing to dismiss the case. The Fed and the Federal Reserve Bank of Kansas City had moved for dismissal, but the court rejected these efforts.
A Fight for Fair Application Processing
Custodia Bank, a significant player in digital asset banking, had initially taken legal action against the Federal Reserve in June 2022. The bank charged the Fed with an "unlawful delay" in handling its master account application. The bank was established in 2020 by Bitcoin advocate and former Morgan Stanley executive Caitlin Long, aiming to provide account services for crypto firms and act as a conduit to the United States dollar.
Statement from Custodia Bank Spokesperson
"The Federal Reserve's latest motion to dismiss Custodia Bank's lawsuit was again rejected. We are pleased that the Fed's attempt to provide itself a veto over state bank chartering decisions will now be tested in federal court," said Nathan Miller, a spokesperson for Custodia Bank, in a conversation with Cointelegraph.
Master Account Application and Fed's Denial
In October 2020, Custodia applied for a Federal Reserve master account. This would allow the bank to utilize the Fedwire network, the Federal Reserve's payment system that processed over 196 million transactions last year. However, in January 2023, the Fed turned down the application, calling it "inconsistent with the required factors under the law" and pointing out the bank's crypto ties.
Custodia's Position as a Special Purpose Depository Institution
Custodia was among the first Special Purpose Depository Institutions (SPDIs) or "blockchain banks" in Wyoming. These institutions were developed to cater to businesses that couldn't secure Federal Deposit Insurance Corporation banking services due to their cryptocurrency engagements. In April, Wyoming intervened in the case, supporting its regulatory structure that lets certain crypto firms qualify as state-chartered banks.
Controversy Over the Fed's Authority
According to Miller, the Fed is bending federal laws to acquire special authority it never received from Congress, despite years of automatically granting master accounts to chartered banks. "The Fed has never held such authority in U.S. history, nor does it need the discretion to block banks that already have been validly chartered by state banking authorities," he said. He emphasized that Custodia earned its bank charter after over 150 prospective applicants were turned down by the Wyoming Division of Banking. "We look forward to the court's review of this power grab by the Fed," he concluded.