Court rules against Custodia Bank losing Fed Master Account 🚫🏦 📜

Understanding Custodia Bank’s Attempt to Obtain a Fed Master Account and Membership

Custodia Bank’s claim for membership and a master account with the Federal Reserve was recently rejected by a US judge, impacting the digital asset institution’s ability to access the Fed’s services. Here’s an overview of the situation:

Custodia Bank’s Bid for Fed Master Account Denied

Custodia Bank sought a Federal Reserve master account to access the Fed’s services, including its payments system.
Judge Scott Skavdahl dismissed Custodia Bank’s application for a master account in a court filing.

Importance of a Master Account

A master account is crucial for deposit institutions to directly access the Federal Reserve’s services.
Without a master account, Custodia Bank would be limited in offering custodial services for crypto assets.

The Reason Behind Custodia Bank’s Application for Fed Master Account And Membership

Let’s delve into why Custodia Bank pursued a master account and membership with the Federal Reserve:

Custodia’s Argument for Master Account

Custodia Bank argued for the necessity of a master account to operate effectively and offer custodial services similar to other banking institutions.
The digital asset claimed that without a master account, it would be dependent on intermediary banks, limiting its capabilities in the market.

Bank’s Application for Fed Membership

In August 2021, Custodia Bank applied for membership in the Federal Reserve to undergo oversight and regulation by the Fed Board.
While membership is not mandatory for a master account, Custodia’s application aimed to demonstrate accountability and federal supervision.

Reasons Behind the Federal Judge’s Denial of Custodia Bank’s Request for Master Account

Understand why the federal judge dismissed Custodia Bank’s plea for a master account with the Federal Reserve:

Custodia’s Argument Rejected

Custodia Bank argued that all legally eligible depository institutions, including itself, should receive a master account from the Fed.
Judge Skavdahl ruled that the Fed has the prerogative to approve or decline master account applications from non-member depository institutions.

Final Ruling

The judge concluded that Custodia Bank is not entitled to a writ of mandamus compelling the Federal Reserve Bank of Kansas City to grant it a master account.
Ultimately, the ruling favored the Federal Reserve Bank of Kansas City, denying Custodia Bank’s request for a master account.