Custodia Bank Lawsuit With The Fed: Judge Rulings Unfavorable To Bank

Key Points:

• Custodia Bank’s bid for a Federal Reserve master account was denied by a federal judge.
• The bank’s application for the account was rejected, prompting a Custodia Bank lawsuit with the Fed.
• Despite Custodia’s arguments, the judge ruled against its appeal, affirming the Fed’s discretion.

A federal judge has dismissed Custodia Bank’s bid for a Federal Reserve master account, ruling against the Wyoming-based institution’s claim of entitlement to such privileges.

Custodia Bank Lawsuit With The Fed Over Account Access

Judge Scott Skavdahl of the District of Wyoming denied the bank’s motion for judgment in Custodia Bank lawsuit with the Fed, asserting that federal laws do not mandate the Fed to grant access to its master account system to every eligible depository institution.

Custodia Bank initially applied for a Federal Reserve master account in October 2020, seeking access to the Fedwire network, which is crucial for real-time gross settlement transactions among member institutions.

However, the bank’s application faced rejection, prompting Custodia Bank lawsuit with the Fed to appear in June 2022. Custodia amended its complaint in February, arguing that the Federal Reserve Board unfairly influenced the rejection decision by the Federal Reserve Bank of Kansas City.

Court Rules Against Custodia’s Appeal, Affirming Fed’s Discretion

Judge Skavdahl’s order emphasized that the law does not compel the Federal Reserve to grant master account access to applicants, and evidence indicates that the Kansas City Fed made the decision independently.

The ruling dealt a blow to Custodia’s ambitions in the digital asset payment and custody sector, as the bank contended that without a master account, it would face significant limitations compared to other institutions. However, Skavdahl firmly declared that Custodia’s appeal for the reversal of the Kansas City Fed’s decision was not justified.

Custodia Bank specializes in providing digital asset payment and custody solutions for commercial customers in the United States.