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#US court shoots down Custodia Bank bid for Fed master account.

The U.S. District Court for the District of Wyoming dismissed Custodia Bank’s plea for a Federal Reserve master account. 

Custodia Bank, specializing in digital assets, has been seeking a master account from the Federal Reserve since 2020. The account, often described as “a bank account for banks,” is crucial for accessing the Fed’s payment systems.

𝗙𝗼𝗹𝗹𝗼𝘄 𝗺𝗲 𝗳𝗼𝗿 𝗺𝗼𝗿𝗲 𝘂𝗽𝗱𝗮𝘁𝗲𝘀

The Wyoming-based bank had argued that without a master account, it would be at a significant disadvantage — particularly in offering custodial services for crypto-assets compared to traditional banking institutions. 

It contended that such a setback would relegate it to a “second-class citizen” status, dependent on intermediary financial institutions. It also said that this dependency undermines its operational autonomy and efficiency.

The Federal Reserve rejected the application in January 2023, citing concerns about Custodia’s involvement in the cryptocurrency sector, which it deemed inconsistent with regulatory requirements. 

Regulators grew especially bearish toward the cryptocurrency sector after 2022 saw Celsius crash; Luna and TerraUSD collapse; and FTX go bankrupt (BlockFi also went bankrupt).

Custodia then sued the Federal Reserve, alleging violations of the Administrative Procedures Act (APA), and sought a writ of mandamus compelling the Federal Reserve Bank of Kansas City (FRBKC) to grant the master account. 

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