Custodia Bank Appeals to Higher Court following March Setback

Custodia Bank has started an appeal process by filing a notice with the United States Tenth Circuit Court of Appeals. 

This move was triggered by a decision of a lower court in March, which denied the bank’s request to be a part of the U.S. banking system. The appeal on April 26 was made against a decision by Judge Scott Skavdahl of the District of Wyoming, who declined the application by Custodia to have a master account of the Federal Reserve in the U.S.

Financial institutions with the Federal Reserve Bank itself maintain master accounts at the Federal Reserve. The master account allows banks to use Federal Reserve facilities, including Fedwire and the Automated Clearing House (ACH) system, for electronic transactions. Fedwire helped process approximately 196 million transactions with an accumulated value of over $1 quadrillion in the year 2022.

In 2020, Caitlin Long, the former capital markets executive of Morgan Stanley and a long-term Bitcoin proponent, set up a bank, providing account services to cryptocurrency firms and enabling their access to the US dollar. The bank, Custodia, applied for a Federal Reserve master account in October 2020. After almost two years of waiting without any resolutions, the bank filed a lawsuit against the Federal Reserve in June 2022, claiming that it deliberately prolonged the assessment of the bank’s application illegally.

The Fed denied the request for the application of a bank for membership in 2023, arguing that the bank’s participation in cryptocurrency measures is against the law requirement for membership. On March 29, Judge Skavdahl decided on the bank’s request for a master account and threw out its call for a declaratory judgment.

Custodia Bank has raised the issue that denial of a master account denies it a level playing field for the provision of custodial services for digital assets, as the bank is no longer competitive as other banks. It should be noted that there are several U.S. banks such as The Bank of New York Mellon that do provide digital asset custody services, at present.

Also, Custodia Bank has objected to a bill of costs submitted by the Federal Reserve Bank of Kansas City, that seeks payment of $25,728.25 for deposition transcript costs. To the bank, such expenses are for granting at this stage of the legal process.