Custodia Bank Appeals Court Loss in Fed Membership Lawsuit

Custodia, a Wyoming-based aspiring crypto bank, filed a notice of appeal against a court ruling that affirmed the Federal Reserve’s rejection of its bid for a master account and membership.

A federal judge ruled last month that the Kansas City Fed had the discretion to reject Custodia’s bid for membership. Custodia, according to the court, had not provided sufficient evidence to back up accusations that the Fed’s Board of Governors was illegally leaning on the Kansas City branch to reject the bank’s bid for a master account. A master account would let Custodia directly access the Fed and not need intermediary banks.

The ruling came years after Custodia first filed suit, alleging the Fed had taken too long to make a decision. The company helmed by Caitlin Long, who helped draft Wyoming’s special purpose depository institution law, later refiled the suit after the Fed formally denied its master account application.

“Unless Federal Reserve Banks possess discretion to deny or reject a master account application, state chartering laws would be the only layer of insulation for the U.S. financial system,” Judge Scott Skavdahl wrote last month. “And in that scenario, one can readily foresee a ‘race to the bottom’ among states and politicians to attract business by reducing state chartering burdens through lax legislation, allowing minimally regulated institutions to gain ready access to the central bank’s balances and Federal Reserve services.”

At the time, a Custodia spokesperson said the company was reviewing the ruling. Custodia also filed an objection to the Fed’s attempt at collecting legal fees, arguing both that the case was ongoing due to the appeal and that granting the fees might “chill” future lawsuits by companies against government or quasi-government entities.

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