Crypto bank Custodia, founded by Caitlin Long, is still unable to gain access to the Federal Reserve’s payment lanes after an appeals court ruled against its years-long effort to obtain a so-called “master account” at the US central bank.
The 10th Circuit Court of Appeals ruled Friday that Wyoming’s special purpose depository institution could not compel the Federal Reserve to grant it access to the master account, upholding a lower court ruling against Custody last year.
“We conclude that the plain language of the relevant statutes grants the Federal Reserve Banks discretion to deny requests for access to master accounts from eligible entities, and therefore, we reject the Custody’s attempt to impair the Federal Reserve’s ability to safeguard our nation’s financial system by exercising discretion to deny access to master accounts,” the ruling says.
Custody sued the Federal Reserve in 2022, initially arguing that the Fed was taking too long to evaluate its request for a master account and later amended the lawsuit after the Fed rejected its request for an account. Custody argued that the Federal Reserve did not have the legal ability to reject a master account application.
A federal judge ruled against Custody last year, ruling that the Federal Reserve was not required to provide a master account to each eligible depository institution. The company appealed soon after, and a three-judge panel heard the parties’ arguments last January.
In a statement sent to X, Custodia said, “while we waited for a victory in the [10th] “On today’s circuit, we received the best option: a strong disagreement.”
Throughout the process, Custodia has argued that the language of the laws governing master accounts means that the Federal Reserve has no choice but to grant access to the account to any eligible depository institution. Several judges now disagree with that interpretation.
Friday’s ruling pointed to both the legislation governing the Federal Reserve and an amendment by former Sen. Pat Toomey (R-Pa.) that say the Fed has discretion in these matters, according to the opinion written by Judge David Ebel.
Custody had also attempted to argue that the Federal Reserve Bank of Kansas City, which would be its supervisory entity, had illegally coordinated with the broader Federal Reserve Board of Governors and the administration of former President Joe Biden to reject its request. Both the district court and the appeals court said they did not find those claims convincing.
“Custody does not point to anything in the record that would allow us to conclude that it was not FRBKC that made the final decision on Custody’s master account application in this case,” the document says.
“Custody has the option of requesting a new hearing before the [10th] Circuit, and we are actively considering it,” the company said in its statement.
While the Fed has not taken any formal steps to allow cryptocurrency-friendly depository institutions to directly access a master account, Fed Governor Chris Waller suggested in a recent speech that the central bank could devise a “thin master account” that crypto firms and similar types of businesses could leverage to access the Fed’s payment lanes, without exposing the Fed to broader systemic risks.
Read more: Governor Waller: US Federal Reserve will ’embrace disruption’, introduces ‘lean’ master account idea
