Custodia Bank has officially expressed its desire to appeal the decision of the U.S. District Court in Wyoming, which upheld the decision of the Federal Reserve Bank of Kansas City (FRBKC) to deny the crypto bank a master account. The move is part of Custodia’s ongoing efforts to secure direct access to the Kansas City Fed’s payment systems, which it considers critical to the growth of its operations.
Custodia’s legal fight with the Federal Reserve
THE call by Custodia marks the latest development in a protracted legal battle that began when the Wyoming-based crypto bank first applied for a master account with the Federal Reserve Bank of Kansas City in 2022. That account would allow Custodia to bypass intermediary banks, positioning it directly within the federal financial network.
After experiencing significant delays, Custodia sued the Federal Reserve Board of Governors and the FRBKC in 2022, arguing that the Kansas City Fed illegally delayed processing its application. The bank then filed a new complaint after the FRBKC officially rejected its main account application in January 2023.
On March 29, 2024, U.S. District Court Judge Scott Skavdahl spoke out against Custodia, emphasizing the discretionary power of the Federal Reserve Banks to grant or deny master accounts, essential for direct engagement with the U.S. financial system. Judge Skavdhal declared,
Federal laws do not require the Federal Reserve to grant each eligible institution a principal account.
Additionally, he highlighted the dangers of a regulatory “race to the bottom,” in which states could reduce oversight to attract business, which could lead to “weakly regulated institutions gaining easy access to central bank balances and the services of the Federal Reserve.
In response, Custodia appears resolute in its desire to obtain a primary account with FRKBC and has now filed a notice of appeal of Judge Skavdhal’s decision with the United States Court of Appeals for the Tenth Circuit. Subsequently, the appeals court will reveal the case and ask both sides to submit their arguments before making a decision, which could uphold or modify the lower court’s decision.
The crypto community remains tight
The ongoing lawsuit between Custodia, the Kansas City Fed, and the Federal Reserve Board of Governors will likely have significant implications for the adoption of cryptocurrency on the global financial stage. While U.S. regulators are concerned about the increased risks digital assets pose to users and investors, Custodia believes these assets provide security of value, especially in an era of massive technological advancement.
Guard States that in this period of “rapidly improving technology”, it offers a banking model capable of adequately serving rapidly developing industries and providing protection against bank runs, which is common in the traditional financial sector . The crypto bank remains committed to its cause and has started exploring all legal means against the “heavy-handed tactics of the Fed”
As legal proceedings continue, the financial industry and cryptocurrency companies await the consequences, which could set an important precedent for the integration of digital asset institutions into the US banking system.
Total crypto market cap valued at $2.262 trillion on the daily chart | Source: TOTAL chart on Tradingview.com
Featured image from New York Times, chart from Tradingview
