Custodia Bank Continues To Push For Fed “Master Account” Despite Being Rejected

Key Points:

• Weeks after the Federal Reserve rejected the bank’s application to open a “master account” and join the Federal Reserve System, Custodia Bank filed an additional case against the Fed on Friday.
• Custodia first sued the Fed last year, alleging at the time that the Fed had missed a legal deadline to make a decision on its application for a master account.
• The lawsuit makes the case that the Fed cannot reject Custodia’s application, noting that the statute says Fed services “shall be available to nonmember depository institutions.”

Weeks after the Federal Reserve rejected the bank’s application to open a “master account” and join the Federal Reserve System, Custodia Bank filed an additional case against the Fed on Friday.

The Wyoming Special Purpose Depository Institution asserted that the Kansas City Fed was not “pulling the strings” and that the Federal Reserve Board, working with the Biden administration, had organized a series of public remarks to accompany the rejection of Custodia’s application.

The suit claimed that Custodia’s master account application was turned down “soon after” the Federal Reserve rejected her request to join the Federal Reserve System at the end of January.

“Defendants had a non-discretionary duty to grant Custodia’s master account application and not to discriminate against Custodia in its ability to access all bank services using that account. Any other outcome eviscerates the dual-banking system that has served our nation since its founding,” the filing said.

Custodia first sued the Fed last year, alleging at the time that the Fed had missed a legal deadline to make a decision on its application for a master account.

“Confronted with discovery requests to the Kansas City Fed and a looming deadline for the Board to produce an administrative record that would have revealed the Board’s control over the Kansas City’s Fed’s decision-making process, Defendants tried to moot the litigation. On January 27, 2023, in a coordinated maneuver orchestrated by the Board in consultation with the White House and leaked to reporters by Board officials the day before it occurred, the Kansas City Fed reported the denial of Custodia’s master account application immediately after the Board denied Custodia’s membership application,” Friday’s filing claimed.

The lawsuit makes the case that the Fed cannot reject Custodia’s application, noting that the statute says Fed services “shall be available to nonmember depository institutions.”

In a statement, Custodia spokesperson Nathan Miller said, “Custodia Bank today continued its ongoing lawsuit against the Federal Reserve Board of Governors and Kansas City Federal Reserve Bank by filing an amended complaint that zeroes in on the core legal issue: whether Congress even granted the Fed discretion to decide master accounts at all.”

The amended lawsuit came the same day Custodia founder Caitlin Long tweeted that she had given evidence of “probable crimes” committed by an unnamed crypto company before it imploded to law enforcement, and warned regulators about bank run risks tied to crypto.

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