A federal judge largely upheld the Federal Reserve’s denial of special-purpose depository institution Custodia Bank’s application for a Fed master account.
Background: Custodia, which focuses on crypto services and other novel activities and is not FDIC-insured, sued the Fed for denying its application to become a Fed member and to have a master account with the Kansas City Fed. Custodia has said it has officially launched as Custodia Bank Inc. in nine states to serve U.S.-based business customers.
Judge’s Decision: In the ruling, Wyoming District Judge Scott Skavdahl:
Agreed with the Fed’s claim that it is authorized to grant or deny master account requests.
Denied Custodia’s claim that the agency’s denial was arbitrary and capricious and therefore in violation of the Administrative Procedure Act.
Found that the Fed did not owe Custodia any non-discretionary duty to issue a master account upon request.
Custodia Response: Custodia told reporters it is reviewing the decision and is weighing its next steps.
ICBA View: ICBA last year commended the Fed’s response to the Custodia application in a national news release, saying the agency’s actions appropriately safeguard the banking system from the risks posed by institutions with novel charters and the crypto sector.
