Wyoming-based digital asset bank Custodia will continue its efforts to obtain access to a Federal Reserve master account. Wyoming is a digital asset-friendly jurisdiction.
A Federal Reserve master account is an account in which a Reserve Bank allows banks or credit unions to use the account to receive deposits. It also provides electronic funds transfers and check payments.
As was recently reported, Custodia was denied in US District Court in its effort to gain access to a master account. The court decided the Fed could choose which banks had access. Custodia filed the lawsuit in 2022.
Key figures in the crypto and blockchain space are calling for Custodia Bank to appeal the Judge’s decision on the matter.
Custodia Bank has been dealing with legal issues while fighting the Federal Reserve for a couple of years now and is expected to appeal the decision, according to a recent update shared by FOX Business News.
Custodia, which is notably one of four crypto-focused banks in the state of Wyoming, told FOX Business it thinks the judge’s decision was not the right one to make, and it’s looking into all of its options, which may potentially include an appeal.
Custodia CEO Caitlin Long told the news media outlet that:
“We find ourselves on the frontlines of the war against de-banking. Judges have concluded the Federal Reserve is more powerful than one of the U.S. states.”
An approval for Custodia could have been a noteworthy achievement for the $2 trillion+ crypto sector, which has benefitted from the Securities and Exchange Commission’s (SEC) January 11, 2024, approval of 11 bitcoin ETFs.
However, Custodia Bank is not guaranteed to win an appeal. Legal professionals who have been watching the case unfold think the bank could have reasonable grounds for submitting an appeal. This would be based on what they’re describing as a major change of opinion by Judge Scott Skavdahl.
Ex- Pennsylvania Senator Pat Toomey, who has been supportive of the digital asset industry, told the news outlet that the judge’s decision is “completely wrong.”
Toomey added that it “was contradictory and inconsistent with his decision in June when he denied the Fed’s request to dismiss the case. There’s no logic here at all, and I hope Custodia decides to appeal.”
SPDIs (special purpose depository institutions) are banks that, under Wyoming law, are permitted to custody crypto-assets as long as they maintain reserves backing 100% of the digital assets on deposit.
The Wyoming Division of Banking had reportedly approved four SPDIs between the dates of 2020 and 2021, even though none have so far been approved/cleared by the Federal Reserve.
Custodia, which operates using an unlevered business model, filed a lawsuit against the Federal Reserve Bank of Kansas City and its board of governors in June 2022.
While Custodia seeks to gain a master account, the move is unpopular with establishment banks.
In 2023, the Independent Community Bankers Association (ICBA) issued the following statement when the request was first denied.
“The denial of Custodia Bank’s application to become a member of the Federal Reserve System, the Fed’s policy statement clarifying that its regulatory limitations apply to both insured and uninsured depository institutions, and the White House’s statement on crypto-assets and stablecoins appropriately reflect the risks posed by special-purpose depository institutions and digital assets.”
The ICBA added:
“As Washington considers the risks and potential policy response to digital assets, ICBA reminds policymakers that the nation’s community bankers are rightly concerned about the privacy, cybersecurity, and systemic risks posed by cryptocurrency. Policymakers should prioritize protecting national security amid ongoing instability in the crypto markets while collaborating on a comprehensive regulatory framework that utilizes more effective alternatives to a U.S. central bank digital currency — including the FedNow instant payments service.”
