Court rules Custodia Bank not entitled to Federal Reserve master account

A Wyoming court has ruled against Caitlin Long’s Custodia Bank by determining that the lender is not entitled to a Federal Reserve master account.

In a summary judgment on March 29, Judge Scott W. Skavdahl found that Custodia Bank has no statutory entitlement to a master account and will not be granted a writ of mandamus for one.

Custodia had argued that the Federal Reserve Bank of Kansas City (FRBKC) must provide a master account merely because it was eligible to apply for one. Meanwhile, the regulator argued that it has the authority to reject requests at its discretion.

The judge concluded that the plain language of the specific law cited by Custodia supports FRBKC’s position. He noted that the law does not mention master accounts or mandate the Fed to provide them to every eligible depository institution.

Instead, the relevant section of the law is intended to ensure that certain services are available to member and non-member depository institutions — but not every depository institution. The same section also establishes an equal fee schedule for both forms of institutions.

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Custodia can’t challenge

The judge also noted that the Board of Governors has not yet filed a final agency decision on the matter. Custodia Bank argued that a particular email — one in which the Board of Governors said it had “no issues” with FRBKC denying the account — qualifies as a final agency decision.

The Board of Governors successfully countered that the message was only designated a final agency decision to comply with Wyoming law and did not meet the legal test for a final agency decision.

According to the judgment, the court lacks the jurisdiction to address Custodia’s claims as the bank could not prove that the action was a final agency decision.

Custodia responds

According to a statement obtained by FOX Business reporter Eleanor Terret, a Custodia Bank spokesperson said the company will determine its next steps after reviewing the judgment.

The spokesperson added:

“Challenging the Fed’s strong-arm tactics has always been an uphill battle, but Custodia Bank remains committed to our vision … .”

Custodia Bank describes itself as a digital asset payment and custody solution that caters to business customers.

While Custodia’s crypto activities are unrelated to the current case around master accounts, the Fed identified its crypto focus as a concern in a related application through which it aimed to become a member of the Federal Reserve system.

The Board of Governors and the Federal Reserve Bank of Kansas City denied Custodia’s request for membership and a master account on Jan. 27, 2023.