Custodia Bank Renews Push for Fed 'Master Account' After Rejection

The Federal Reserve and Kansas City Fed rejected Custodia's applications for membership and a master account last month.

AccessTimeIconFeb 17, 2023 at 10:12 p.m. UTC
Updated Feb 21, 2023 at 4:30 p.m. UTC

Custodia Bank filed an amended complaint against the Federal Reserve Friday, weeks after the Fed rejected the bank's effort to secure a "master account" and become a member of the Federal Reserve System.

The Wyoming Special Purpose Depository Institution claimed the denial of its application was unlawful, alleged the Federal Reserve Board and Biden administration coordinated a series of public statements to accompany the rejection of Custodia's application and said the Federal Reserve Board – not the Kansas City Fed – was "pulling the strings."

The Federal Reserve denied Custodia's application to be a member of the Federal Reserve System at the end of January, and Custodia's master account application was rejected "immediately after," the suit said.

"Defendants had a non-discretionary duty to grant Custodia’s master account application and not to discriminate against Custodia in its ability to access all bank services using that account. Any other outcome eviscerates the dual-banking system that has served our nation since its founding," the filing said.

Custodia first sued the Fed last year, alleging at the time that the Fed had missed a legal deadline to make a decision on its application for a master account.

"Confronted with discovery requests to the Kansas City Fed and a looming deadline for the Board to produce an administrative record that would have revealed the Board’s control over the Kansas City’s Fed’s decision-making process, Defendants tried to moot the litigation. On January 27, 2023, in a coordinated maneuver orchestrated by the Board in consultation with the White House and leaked to reporters by Board officials the day before it occurred, the Kansas City Fed reported the denial of Custodia’s master account application immediately after the Board denied Custodia’s membership application," Friday's filing claimed.

The lawsuit makes the case that the Fed cannot reject Custodia's application, noting that the statute says Fed services "shall be available to nonmember depository institutions."

In a statement, Custodia spokesperson Nathan Miller said, "Custodia Bank today continued its ongoing lawsuit against the Federal Reserve Board of Governors and Kansas City Federal Reserve Bank by filing an amended complaint that zeroes in on the core legal issue: whether Congress even granted the Fed discretion to decide master accounts at all."

The amended lawsuit came the same day Custodia founder Caitlin Long tweeted that she had given evidence of "probable crimes" committed by an unnamed crypto company before it imploded to law enforcement, and warned regulators about bank run risks tied to crypto.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.