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Crypto bank Custodia chalked a recent ruling in its battle against the Fed as a key win.
In light of the Wyoming Federal Judge's decision released on Thursday, which denied the Federal Reserve's bid to dismiss its lawsuit against it, Custodia Bank has been instilled with renewed hope in its ongoing legal battle against the institution.
Custodia, founded by Morgan Stanley veteran Caitlin Long in 2020, was designed to provide a bridge between digital assets and the U.S. dollar system.
In its June 2022 lawsuit, it accuses the Federal Reserve of unlawfully delaying its application for a so-called master account, a crucial component for it to operate effectively in the U.S. financial system.
This January, the crypto bank amended its complaint and is now demanding whether the Fed has the authority to block Custodia from landing a master account.
“After decades of automatically granting master accounts to chartered banks, the Fed ‘reinterpreted’ federal law to hand itself special authority that it never received from Congress,” a spokesperson for Custodia told Decrypt. “We look forward to the court’s review of this power grab by the Fed.”
Custodia is currently authorized by Wyoming law to operate as a Special Purpose Depository Institution (SPDI), offering both crypto and traditional banking services.
However, it still needs a so-called master account with the Federal Reserve to fully exercise its banking powers.
Custodia vying for ‘master account’
The master account would provide Custodia access to the FedWire network, which handled approximately 200 million transfers amounting to over $1 quadrillion in 2022.
Custodia applied for a master account at the Federal Reserve Bank of Kansas City in October 2020, and has expressed strong concern over what it perceives as an overreach of the Federal Reserve's authority.
"The Fed has never held such authority in U.S. history, nor does it need the discretion to block banks that already have been validly chartered by state banking authorities that rigorously separate the wheat from the chaff,” the bank spokesperson shared with Decrypt. "Indeed, the Wyoming Division of Banking rejected more than 150 prospective applicants before Custodia received its bank charter."
The delay in processing its master account application impacted Custodia's entry into the financial services market, forcing the bank to partner with a correspondent bank that already possessed a master account.
The Wyoming Federal’s judge decision may make it more likely that the question of whether the Federal Reserve properly handled Custodia’s application will be answered in court.