Custodia Bank said that it is a “second-class citizen” dependent on an intermediary bank in the absence of a master account.
Custodia Bank’s request for a declaratory judgement was denied by the US District Court for the District of Wyoming, which also decided against granting the digital asset bank a master account with the US Federal Reserve. Custodia asserts that it is investigating every option and is not giving up. A Custodia Bank representative stated, “We are reviewing the court’s decision and all of our options, including appeal.”
Judge Scott Skavdahl rejected Custodia’s attempt to obtain a Federal Reserve master account in a document dated March 29. Often referred to as “a bank account for banks,” the account makes it easier for financial organisations to use the Federal Reserve’s payment systems.
Custodia argued that the bank would be at a disadvantage if it couldn’t provide the same custodial services for crypto-assets as other financial institutions since it wouldn’t be able to do so without a master account. It contended that Custodia is reduced to the status of a second-class citizen, dependent on and loyal to an intermediary bank, if it is able to function at all, in the absence of a master account.
Moreover, Custodia does not have the right to have the Federal Reserve Bank of Kansas City (FRBKC) decision reversed, according to Skavdahl:
“FRBKC must be granted summary judgement on Claim II, and Custodia is not entitled to its requested writ of mandamus compelling FRBKC to issue its master account.”
In October 2020, Custodia applied for a master account with the Federal Reserve. If approved, the application would give the bank access to the Fedwire network, which in 2023 handled more than 193 million transactions.
Custodia’s membership application was denied by the Fed in January 2023, with the reason that its activities in the cryptocurrency industry were “inconsistent with the required factors under the law.”
One of the earliest Special Purpose Depository Institutions (SPDIs), or “blockchain banks,” in Wyoming was Custodia. SPDIs were established to assist companies who were unable to obtain banking services from the Federal Deposit Insurance Corporation because of their interactions with