Court Denies Crypto Bank Custodia’s Bid to Pry Master Account From Unwilling Fed

A federal appeals court in Denver on Friday upheld a lower court’s earlier ruling, throwing cold water on crypto bank Custodea’s attempt to force the Federal Reserve to grant it a coveted master account.

The three-judge panel held that custodians are not obligated to obtain master accounts just because they are technically eligible to do so, and upheld the Federal Reserve’s argument that the central bank has the right to deny such privileges in certain cases.

In Custodia’s case, the Federal Reserve’s Kansas City branch determined that the bank’s cryptocurrency-centric business model posed an unreasonable risk to the U.S. banking system.

Master accounts held by all federally chartered banks provide direct payments from the Fed and access to Fed services. Therefore, these are valuable assets that enable financial institutions to operate nationally and significantly expand their services. So far, zero crypto-only banks have been granted such privileges by the Fed. Custodia currently operates under a Special Purpose Depositary Institution (SPDI) charter granted by the State of Wyoming.

Of note is Friday’s ruling against Custodia, which affirmed the federal district court’s decision. ruling Judge David Ebell, who was appointed to the court by former President Ronald Reagan, wrote Friday’s decision in a 2-1 vote on a panel dominated by Republican-appointed judges.

“We conclude that the plain language of the relevant statutes provides the Federal Reserve with discretion to deny requests from eligible entities for access to master accounts,” Ebell wrote. “Therefore, we reject Custodial’s attempt to undermine the Fed’s ability to protect our nation’s financial system through the exercise of its discretion to deny access to master accounts.”

The sole dissenting judge, Timothy Timkovich, an appointee of President George W. Bush, argued that a related statute that says the Fed’s payment services “shall” be available to eligible nonmember banks should force the Fed to grant master accounts to all eligible banks, including Custody.

“This case is cloaked in 21st century terminology: virtual currencies, digital assets, instant wire transfers, and master accounts,” Timkovich wrote in his dissent. “But there is nothing new on this issue.”

When asked to comment on today’s decision, Custodia founder Caitlin Long said: decryption In response to a statement released by the company.

“We were hoping for a victory today at the 10th circuit, but we received the next best thing – a strong opposition,” the bank said.

The company went on to say it may seek rehearing of the case in the 10th Circuit, arguing that the decision should be considered split because there is another decision in the same jurisdiction on a similar issue by a different judge.

However, the war over crypto master accounts may soon be largely resolved without court intervention. For a long time, former Federal Reserve Chairman Jerome Powell target If President Donald Trump endures the wrath and leaves office, the Fed’s board members, who are more closely aligned with the White House, are expected to exercise control over the central bank and reverse its current crypto-skeptical policies.

Earlier this month, Fed Director Christopher Waller, one of the top candidates to replace Mr. Powell, floated the idea of ​​offering professional services. “Skinny” master account We deliver on an accelerated schedule to all types of cryptocurrencies and innovation-focused banks.