Custodia, a crypto bank established by Caitlin Long, has faced another setback in its pursuit of access to the Federal Reserve’s payment system. An appeals court has ruled against its prolonged effort to secure a “master account” with the U.S. central bank.
The 10th Circuit Court of Appeals ruled on Friday that the Wyoming special purpose depository institution could not compel the Fed to provide it with master account access, upholding a lower court’s decision against Custodia from the previous year.
The ruling stated, “We conclude that the plain wording of the applicable statutes provides Federal Reserve Banks the discretion to deny master account access requests from eligible entities, thus rejecting Custodia’s efforts to undermine the Fed’s ability to protect our national financial system through the exercise of discretion.”
In 2022, Custodia filed a lawsuit against the Federal Reserve, initially claiming that the Fed was unduly delaying its master account application and later modifying the lawsuit after the Fed denied its request. Custodia contended that the Fed lacked the legal right to reject such an application.
The ruling last year from a federal judge determined that the Fed is not obligated to provide master accounts to every eligible depository institution. After this, Custodia filed an appeal, which was heard by a three-judge panel in January.
In a statement on X, Custodia expressed, “Though we hoped for a favorable outcome at the [10th] Circuit today, we received a strong dissent, which is the next best thing.”
Throughout the proceedings, Custodia maintained that the laws governing master accounts imply the Fed has no option but to approve access for any eligible depository institution. This interpretation has been consistently disputed by multiple judges.
The ruling on Friday referenced both existing legislation governing the Fed and an amendment by former Senator Pat Toomey (R-Pa.), indicating that the Fed does possess discretion in these situations, according to Judge David Ebel’s opinion.
Custodia also attempted to assert that the Federal Reserve Bank of Kansas City, which would supervise it, had improperly collaborated with the wider Federal Reserve Board of Governors and the administration of former President Joe Biden to deny its application. However, both the district and appeals courts found these claims unconvincing.
The filing noted, “Custodia presents no evidence in the record that would lead us to conclude that it was not the FRBKC that made the final decision on Custodia’s master account application.”
In its statement, Custodia mentioned, “We have the option to petition for a rehearing by the [10th] Circuit, and we are actively contemplating that.”
While the Federal Reserve has not formally moved toward permitting crypto-friendly depository institutions access to a master account, Fed Governor Chris Waller recently hinted that the central bank might develop a “skinny master account” for crypto firms and similar entities to access the Fed’s payment systems without exposing it to broader systemic risks.
Read more: Gov. Waller: U.S. Fed to ‘Embrace Disruption,’ Pitches ‘Skinny’ Master Account Idea
