Crypto bank Custodia, founded by Caitlin Long, still can’t access the Federal Reserve’s payment rails after an appeals court ruled out its years-long effort to obtain a so-called “master account” with the US central bank.
The 10th Circuit Court of Appeals ruled Friday that the Wyoming special-purpose institution could not compel the Fed to give it access to a master account, upholding a lower court ruling against Custodia last year.
“We conclude that the plain language of the relevant statutes gives the Federal Reserve Bank discretion to deny requests for master account access from eligible entities, and therefore we reject Custodia’s attempt to impair the Fed’s ability to protect our nation’s financial system through the exercise of discretion to deny master account access,” the ruling said.
Custodia sued the Federal Reserve in 2022, initially arguing that the Fed took too long to evaluate its application for a master account, and later amended the case after the Fed rejected its push for an account. Custodia argued that the Fed did not have the legal authority to reject an application for a master account.
A federal judge ruled against Custodia last year, ruling that the Fed was not required to provide all eligible depository institutions with a master account. The company appealed soon after, and a three-judge panel heard arguments from the parties in January.
In a statement sent to X, Custodia said, “while we were hoping for a win on [10th] Circuit today, we received the next best thing – a strong dissent.”
Throughout the process, Custodia has argued that the language of the master account laws means the Fed has no choice but to grant account access to any eligible depository institution. Several judges have now disagreed with that interpretation.
Friday’s ruling pointed to both the governing law surrounding the Fed as well as an amendment by former Sen. Pat Toomey (R-Pa.), all of which say the Fed has discretion in these matters, said the opinion written by Judge David Ebel.
Custodia had also tried to argue that the Federal Reserve Bank of Kansas City, which would be its supervisor, had illegally coordinated with the Federal Reserve Board of Governors and the administration of former President Joe Biden to reject its application. The District Court and the Court of Appeal both said they did not find these claims persuasive.
“Custodia points to nothing in the record that would allow us to conclude that it was not FRBKC that made the final decision on Custodia’s master account application in this case,” the filing states.
“Custodia has an option to file a petition for a rehearing of [10th] Circuit, and we are actively considering it,” the company said in its statement.
While the Federal Reserve has not formally taken steps to allow crypto-friendly depository institutions direct access to a master account, Fed Governor Chris Waller suggested in a recent speech that the central bank could devise a “skinny master account” that crypto firms and similar types of businesses could use to access the Fed’s payment rails without opening up the Fed system’s risk too broadly.
Read more: Governor Waller: US Fed will ’embrace disruption’, pitches ‘Skinny’ main account idea
