Key Takeaways
- Custodia petitioned the Supreme Court, challenging the Fed’s unchecked power to deny vital master accounts.
- The Fed blocked Custodia’s master account in 2023, threatening the survival of innovative financial models.
- The Supreme Court will review the petition in October, potentially altering state and federal banking rules.
Custodia Bank Files Certiorari to Put Regional Federal Reserve Banks in Check
One of the longest crypto banking sagas might be coming to an end, as Custodia Bank is now taking its fight to the higher echelons of the U.S. legal system.
The bank has filed a certiorari petition to the Supreme Court to ascertain the level of power that Federal Regional Bank presidents have to manage the approval of master accounts. Master accounts are essential for financial institutions, as they enable them to move funds on central bank rails, taking advantage of the Federal Reserve’s suite of services, including Fedwire, FedNow, and FedACH.
Crypto in America host Eleanor Terrett highlighted that Custodia Bank has hired law firm Davis Polk to lead this effort, stressing that the continuous denial of a master account “works a fundamental shift in the balance between state and federal authority over banking,” calling into question the power levels of the Federal Reserve Bank presidents and also affecting the feasibility and business models of other innovative financial institutions.
The filing argues that the Fed’s decisions might constitute an “abuse of authority,” stressing that the case “presents an exceptionally important question: whether regional Federal Reserve Bank presidents possess unbounded, unreviewable discretion to deny disfavored banks access to the Federal Reserve’s payment services.”
Custodia Bank was denied access to a master account in 2023, with the Federal Reserve Board stating that “the firm’s novel business model and proposed focus on crypto-assets presented significant safety and soundness risks.”
The bank appealed this decision to the 10th Circuit Court of Appeals. Ultimately, the court sided with the Federal Reserve Bank of Kansas City in 2024, meaning this might be the last action in the bank’s 6-year legal battle to become a federally chartered institution.
The Supreme Court will decide whether to consider this case in October.
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