Custodia has filed a suit against the Federal Reserve for delaying a decision on its application for a master account by 19 months.
Key Takeaways
Digital asset bank Custodia is suing the Federal Reserve Bank of Kansas City for delaying a decision to grant it a master account.
Custodia claims the Federal Reserve has refused to act upon its application for a master account resulting in a 19-month delay.
If Custodia wins its suit or is granted a master account, it will be the first digital asset bank in the U.S. to secure one.
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Custodia, a Wyoming-based digital assets bank founded by Caitlin Long, is suing the Kansas City branch of the Federal Reserve Bank for “unlawfully” delaying the decision to grant it a master account.
Custodia Fights the Fed
Caitlin Long’s “blockchain bank” has filed a suit against the Fed.
Digital asset bank Custodia brought a case against the Federal Reserve Bank of Kansas City Tuesday, accusing the central bank branch of shirking its legal obligation to act within a year on its own paperwork. Custodia alleges the Fed has “unlawfully” delayed the decision to grant it a master account by 19 months.
In a 44-page document presented to the United States District Court of Wyoming, Custodia claims the Federal Reserve has refused to act upon its application for a master account resulting in a 19-month delay. The suit states that per official Federal Reserve documentation, a master account decision should “ordinarily take 5-7 business days,” and that the processing delay had “clearly violated the 1-year statutory deadline for doing so.”
“Through this lawsuit, Custodia seeks to ensure that its Federal Reserve master account application receives the fair dealing and due process guaranteed to it by both federal statute and the U.S. Constitution,” explained Custodia spokesperson Nathan Miller in a statement. “Custodia has satisfied every rule applicable to it, and has gone beyond by applying to become a Fed member bank,” he said.
Custodia’s suit also stresses the importance of obtaining a master account, calling the decision to grant one “critical” to the bank’s business. Having an account at one of the twelve Federal Reserve Banks allows institutions direct access to the Federal Reserve’s payment systems and the ability to settle transactions with other participants using central bank money. In place of a master account, Custodia has had to partner with a correspondent bank with master account privileges, a decision it calls “a decidedly second-best and far more expensive alternative.”
Formerly known as Avanti Financial Group, Custodia is classed as a Special Purpose Depository Institution and was founded by long-time Bitcoin advocate Caitlin Long in 2020. The bank, incorporated under Wyoming state regulations that Long helped write, requires it to maintain custody of the crypto assets it holds. It is the second “blockchain bank” founded under the Wyoming regulations after the crypto exchange Kraken. In March 2021, Custodia raised $37 million from investors, including Binance.US, Coinbase Ventures, and Morgan Creek Digital, to help fund the bank’s launch.
If Custodia wins its suit or is granted a Fed master account, it will be the first digital asset bank in the U.S. to secure one. However, it appears the Fed is not taking the decision to grant Custodia a master account lightly. As the bank is attempting to incorporate the traditional financial system with cryptocurrencies like Bitcoin, the lawsuit—and the Fed’s reaction to it—will set a major precedent for future digital asset banks in the U.S.
Disclosure: At the time of writing the piece, the author owned ETH and several other cryptocurrencies.
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