US Court Supports Fed in Custodia Bank Case, Rejects Appeal

Custodia Bank, a digital asset bank, has faced a setback in its quest to obtain a master account from the United States district court. The court not only ruled against granting Custodia Bank a master account but also dismissed its plea for a declaratory judgment. Despite this, Custodia remains determined and is exploring all possible avenues, including the option of appealing the court’s decision.

Judge Scott Skavdahl of the United States District Court of Wyoming dismissed Custodia’s bid to secure a Federal Reserve master account. This master account is essentially a bank account for banks, allowing them access to the Federal Reserve’s payment systems. Custodia argued that without a master account, it would be at a disadvantage in offering custodial services for crypto-assets compared to other banking institutions. The bank claimed that without this account, it would be dependent on and subservient to an intermediary bank.

In addition to this, Judge Skavdahl stated that Custodia does not have the right to overturn the decision made by the Federal Reserve Bank of Kansas City. He declared, “Custodia is not entitled to its requested writ of mandamus compelling FRBKC to issue its master account, and summary judgment on Claim II must be granted in FRBKC’s favor.” Essentially, the court affirmed the Federal Reserve Bank’s decision to deny Custodia a master account.

Custodia submitted an application for a Federal Reserve master account in October 2020. If granted, this account would provide the bank with access to the Fedwire network, which processed a staggering 193 million transactions in the previous year. In January 2023, the Federal Reserve rejected Custodia’s membership application, citing its involvement in the crypto space as inconsistent with the required factors under the law.

Custodia Bank is one of Wyoming’s first Special Purpose Depository Institutions (SPDIs), commonly referred to as “blockchain banks.” These institutions were established to assist businesses that could not obtain banking services from the Federal Deposit Insurance Corporation due to their involvement in cryptocurrencies.

Custodia Bank’s attempt to secure a master account from the United States district court has been unsuccessful. The court not only denied its request but also dismissed its plea for a declaratory judgment. Custodia remains undeterred and is considering all options, including the possibility of appealing the court’s decision. This setback highlights the challenges faced by the bank in providing custodial services for crypto-assets without a master account, as well as the ongoing regulatory complexities surrounding the cryptocurrency industry in the United States.