Custodia Bank Appeals to Higher Court After March Setback

Custodia Bank has initiated an appeal process by filing a notice with the United States Tenth Circuit Court of Appeals. This action comes as a response to a March ruling by a lower court, which refused the bank’s application to become a part of the U.S. banking framework. The appeal, documented on April 26, targets a ruling made by District of Wyoming’s Judge Scott Skavdahl, which rejected Custodia’s application for a master account with the Federal Reserve in the U.S.

Financial institutions with the Federal Reserve Bank directly maintain master accounts at the Federal Reserve. Possessing a master account enables banks to utilize Federal Reserve facilities, including Fedwire and the Automated Clearing House (ACH) system for electronic transactions. In the year 2022, Fedwire facilitated around 196 million transactions, with a total value exceeding $1 quadrillion.

In 2020, Caitlin Long, who previously held an executive position at Morgan Stanley and was an advocate for Bitcoin from its early days, established a bank aimed at offering account services to cryptocurrency companies while facilitating their access to the U.S. dollar. The bank, Custodia, submitted an application for a Federal Reserve master account in October 2020. After waiting nearly two years without a decision, the bank initiated legal action against the Federal Reserve in June 2022, accusing it of illegally delaying the processing of its application.

In 2023, the Federal Reserve declined the application for membership from a bank, citing its involvement in the cryptocurrency sector as incompatible with the legal requirements for membership. On March 29, Judge Skavdahl ruled against the bank’s request for a master account and dismissed its call for a declaratory judgment.

Custodia Bank has expressed concerns that being denied a master account hampers its ability to offer custodial services for digital assets on par with other banks, thereby affecting its competitive edge. It’s worth noting that several U.S. banks, including the Bank of New York Mellon, currently provide digital asset custody services.

Additionally, Custodia Bank has raised objections to a bill of costs presented by the Federal Reserve Bank of Kansas City, which demands payment of $25,728.25 for costs related to deposition transcripts. The bank contends that such costs are premature to be awarded at this point in the legal process.

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