The custodian bank took a step forward in its legal battle with the Fed as a federal judge in Wyoming rejected motions to fire both the central bank and the Kansas City Fed.
The digital asset bank sued the Fed in June 2022, claiming "unlawful delays" in processing applications for its master account. Caitlin Long, a former Morgan Stanley executive and early Bitcoin supporter, founded the bank in 2020 to provide accounts for crypto companies and act as a bridge to the dollar. "The Fed's recent motion to dismiss Custodia Bank's lawsuit was denied again. We are pleased that the Fed's attempt to provide itself with veto power over state bank chartering decisions will now be tested in federal court," Custodia B ank spokesman Nathan Miller said in a statement. told in a statement.
Custodia submitted its application for the Fed Master Account in October 2020. The application, if approved, would give the bank access to the Federal Reserve's payments system, the Fedwire network, which processed more than 196 million transactions last year. In Janu ary 2023, the Federal Reserve rejected the membership application, saying it had "factors that do not meet the legal requirements" and citing the bank's foray into the cryptocurrency space.
Custodia is one of Wyoming's first special purpose depository institutions (SPDIs), also known as "blockchain banks." SPDI was created to serve businesses that do not have access to FDIC banking services because of their dealings with cryptocurrencies. the state of Wyoming asked to intervene in a case between the bank and the Federal Reserve, defending its framework that would allow certain cryptocurrency firms to qualify as state-chartered banks. According to Miller, the Fed is reinterpreting federal law to grant itself special powers it never received from Congress after decades of automatically granting master accounts to chartered banks. "Never before in American history has the Fed had such power,nor does it need the discretion to block a bank that has been effectively chartered by state banking authorities to strictly separate the wheat from the chaff," Miller continued, adding that Custodia received After more than 150 potential applicants for its bank charter were rejected by the Wyoming Department of Banking, he said: "We look forward to court review of this power grab by the Fed."
