Key Takeaways
- The judge clarified that federal laws don’t mandate the central bank to grant access to its master account system to all eligible depository institutions
- Custodia claimed that the Fed’s board unlawfully instructed the Kansas City Fed to reject its application
Custodia Bank faced a tough setback as a US District Court rejected its plea for a Federal Reserve master account and dismissed its request for a declaratory judgment. The ruling, handed down by Judge Scott Skavdahl on March 29, dashed Custodia’s hopes of securing a crucial entry point to the Federal Reserve’s payment systems.
In Custodia’s legal battle against the Federal Reserve, it raised several key arguments, primarily alleging a breach of the Administrative Procedures Act (APA). Custodia argued that the Fed’s rejection was unfair and violated the law. However, Judge Skavdahl determined that the court lacked the authority to review the Fed’s decision, thereby siding with the Federal Reserve.
This legal saga began in June 2022 when Custodia initiated legal action against the Federal Reserve, citing undue delays in processing its master account application, which had been submitted in late 2020. Master accounts are vital for banks, granting direct access to the Federal Reserve and its payment network. However, Custodia’s application hit a roadblock when the Fed rejected it in January 2023, expressing concerns about the bank’s involvement in the cryptocurrency realm.
Following this setback, Custodia amended its complaint against the Federal Reserve, emphasizing the importance of the master account for offering custodial services for crypto-assets. Custodia argued that without this account, it would be left at a disadvantage compared to its peers in the banking sector.
In delivering his verdict, Judge Skavdahl asserted that Custodia lacked the entitlement to compel the Federal Reserve Bank of Kansas City to issue its master account. Despite the unfavorable ruling, Custodia remains steadfast. Nathan Miller, a spokesperson for Custodia, affirmed the bank’s unwavering commitment to challenging the Federal Reserve’s decisions.
Miller conveyed Custodia’s determination to forge ahead with its mission of establishing a secure and technologically advanced bank, indicating that the bank is carefully considering its options, including the prospect of lodging an appeal.
