Custodia Bank has officially filed an appeal following a federal judge’s decision to deny the digital asset bank access to a Federal Reserve master account.
The notice of appeal was lodged on Friday in the US District Court for the District of Wyoming. This legal move represents the latest effort in Custodia’s ongoing quest to secure a direct connection to the United States central banking system—a quest that began with its initial application in 2020.
🚨NEW: @custodiabank has filed a notice of intent to appeal a Wyoming district judge’s March 29th ruling that the @federalreserve has full discretion to deny Custodia access to a Master Account. pic.twitter.com/HCn8zNqniC
— Eleanor Terrett (@EleanorTerrett) April 26, 2024
The Federal Reserve Board of Governors intervened in the decision-making process regarding Custodia’s application in the spring of 2021, indicating the high stakes and complexity of the bank’s request. Custodia later initiated a lawsuit in 2022 against both the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, citing undue delays in the decision on its application.
Details from the District Court’s Ruling
In a ruling issued last month, Judge Scott Skavdahl of the US District Court for the District of Wyoming decided that the Federal Reserve Banks are entitled to use their discretion when granting or denying master accounts. Judge Skavdahl articulated concerns that without such discretion, there could be minimal regulatory barriers preventing virtually any state-chartered institution from gaining direct access to the federal financial system. This, he suggested, could potentially lead to a regulatory “race to the bottom” among states.
Judge Skavdahl’s decision emphasized that the denial of Custodia’s master account application was a protective measure for the integrity of the US financial system. It suggested that direct access might allow less regulated entities to manage central bank funds and services too freely.
Custodia’s Position and Response
Founded by Wall Street veteran Caitlin Long, who played a role in crafting Wyoming’s special purpose depository institution law, Custodia operates under unique conditions. As a special purpose depository institution, Custodia is allowed to receive deposits and offer custody services, among other activities, but it is barred from lending customers fiat deposits. According to Custodia’s website, the bank is also required to hold these deposits fully in reserve.
Following the court’s decision, a spokesperson for Custodia indicated that the company was closely reviewing the judge’s ruling. Additionally, Custodia has contested the Federal Reserve’s request for legal fees associated with the case. The bank argues that the imposition of such fees, while the case remains active due to the pending appeal, could deter future legal challenges against government or quasi-government entities by other companies.
