Crypto-focused bank challenges Federal Reserve denial, citing state banking authority and constitutional concerns
Custodia Bank, a Wyoming-chartered crypto bank, has filed a petition for a rehearing en banc at the Tenth Circuit Court of Appeals, aiming to overturn the Federal Reserve’s denial of a master account. The move follows the court’s October ruling that upheld the Fed’s decision, which Custodia argues misinterpreted the Monetary Control Act.
Importance of a Fed Master Account for Crypto Banks
A master account issued by the Federal Reserve allows banks to hold balances directly with the central bank and access its core payment and settlement systems. For Custodia, a master account would enable direct clearing of transactions in central bank money, reducing reliance on correspondent banks, which adds cost, delay and operational risk. The bank has compared the master account tier to a “Diamond level” in payment system access, above standard banking and trust company levels.
Since its launch in 2020, Custodia has pursued Fed approval, but the Kansas City Fed denied the application in January 2023, and the Federal Reserve also rejected membership in the system. Custodia contends the Fed’s decision undermines state banking charters and raises constitutional questions regarding the Fed’s authority over state-chartered institutions.
The petition highlights broader crypto debanking challenges, as Custodia and a few other crypto banks remain among the few firms seeking direct central bank access amid regulatory uncertainties.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.