A federal appeals court in Denver recently said it would be upholding the US Federal Reserve’s decision to deny Custodia Bank access to a master account. This is yet another setback for the Wyoming-headquartered crypto-focused bank, which has spent several years trying to gain direct access to the US central banking system.
As widely reported, the US Tenth Circuit Court of Appeals stated that the US Federal Reserve has the authority to prevent crypto-friendly banks from accessing so-called master accounts. Presiding Judge David Ebel has noted that the Fed’s authority to deny these types of requests is vital to safeguard the financial system and ensure its overall stability.
The latest ruling should now prevent Custodia and other crypto-friendly banks from directly accessing Fed payments systems for now at least.
The Tenth Circuit Court of Appeals has now sided with a lower court that the Fed has decision-making power over which FIs are able to maintain master accounts, which enable direct access to various Fed services like payments clearing as well as routine wire transfers.
The court determined that although Custodia Bank is eligible in principle, actual eligibility does not mean any kind of entitlement.
Judge David Ebel has now clarified that the existing law provides the Fed with the authority to deny master account access requests from so-called “eligible entities” in an effort to ensure financial stability.
Ebel explained that they denied Custodia’s efforts to curb the Fed’s powers to safeguard the country’s financial sector via the exercise of discretion.
Custodia, which presently does business under Wyoming’s Special Purpose Depository Institution charter, countered that it is being excluded from the US banking network in an unfair manner, even though it claims to have now meet the required guidelines.
Notably, the Federal Reserve Bank of Kansas City has stated that Custodia’s business model, primarily focused on on custody as well as settlement of digital assets, presented “undue” or unjustifiable risk to the wider financial sector.
Meanwhile, Judge Timothy Tymkovich maintained that the Fed’s actual statutes require it to offer payment services to eligible non-member banking institutions (which now includes Custodia Bank as well).
He added that this recent case comes wrapped up in so-called 21st-century terms: cryptocurrency, digital assets, wire transfers, and master accounts. But there is “nothing new about this issue,” the Judge claimed.
Custodia‘s management has said that the latest decision was rather disappointing but referenced Tymkovich’s counter-argument as a sort of validation of its position on the matter.
The bank also stated that they had been hoping for a win at the Tenth Circuit, but they might have gotten the second-best outcome in the form of “a strong dissent.” The bank also noted that it could potentially pursue a second hearing based on a conflicting ruling in another somewhat similar case.
