US court favors Fed in Custodia Bank case, rejects appeal for review

The United States District Court for the District of Wyoming has ruled against granting Custodia Bank a U.S. Federal Reserve master account and dismissed the digital asset bank’s plea for a declaratory judgment. However, Custodia claims it is not backing down and is exploring all possible avenues.

“We are reviewing the court’s decision and all of our options, including appeal,” a spokesperson for Custodia Bank told Cointelegraph.

In a March 29 filing, Judge Scott Skavdahl dismissed Custodia’s bid to secure a Federal Reserve master account. The account, often called “a bank account for banks,” facilitates financial institutions’ access to the Federal Reserve’s payment systems.

Court filing in the U.S. District Court for the District of Wyoming. Source: Eleanor Terrett

Custodia contended that without a master account, it would be unable to offer the same custodial services for crypto-assets as other banking institutions, placing the bank at a disadvantage.

“Without a master account, if Custodia is able to operate at all, it is a second-class citizen, relegated to dependency on and fealty to an intermediary bank,” it argued.

Furthermore, Skavdahl declared that Custodia is not entitled to have the Federal Reserve Bank of Kansas City (FRBKC) decision overturned:

“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.”

Related: Federal Reserve lists CBDCs as one of 7 ‘key duties’ to Congress

Custodia submitted an application for a Federal Reserve master account in October 2020. The application, if granted, would allow the bank access to the Fedwire network, which processed over 193 million transactions in 2023.

In January 2023, the Fed rejected Custodia’s membership application, citing its involvement in the crypto space as “inconsistent with the required factors under the law.”

Custodia was one of Wyoming’s first Special Purpose Depository Institutions (SPDIs), also known as “blockchain banks.” SPDIs were set up to help businesses that couldn’t secure Federal Deposit Insurance Corporation banking services due to their dealings with crypto.

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