Custodia Bank Loses Lawsuit Challenging Fed Rejection of Master Account Application

A
federal
judge
has
rejected
Wyoming-based
Custodia
Bank’s
argument
that
it
is
entitled
to
a
Federal
Reserve
master
account
and
membership
with
the
Fed.

Judge
Scott
Skavdahl,
of
District
of
Wyoming,

denied
Custodia’s
motion
for
judgement
on
Friday,
writing
that
federal
laws
do
not
require
the
nation’s
central
bank
to
give
every
eligible
depository
institution
access
to
its
master
account
system,
nor
did
the
provided
evidence
suggest
that
the
Federal
Reserve
Board
of
Governors
influence
a
regional
branch
of
the
Fed
to
deny
its
application
for
an
account.

Custodia
sued
the
Fed
in
June
2022,
arguing
that
the
Federal
Reserve
Bank
of
Kansas
City
had
been
taking
too
long
to
make
a
decision
on
its
application
for
a
master
account.
Master
accounts
allow
banks
and
depository
institutions
to
directly
access
the
Federal
Reserve,
rather
than
require
them
to
go
through
intermediary
banks.
It

amended
its
complaint
against
the
Fed
last
February,
after
the
central
bank
rejected
its
application
(the
Fed
later
published

a
scathing
report
explaining
its
decision).

In
its
amended
complaint,
Custodia
argued
that
the
Fed’s
board
had
unlawfully
directed
the
Kansas
City
Fed
to
reject
its
application,
and
that
the
Fed
did
not
have
the
discretion
to
reject
applications
from
nonmember
depository
institutions.

In
his
order
Friday,
Judge
Skavdahl
wrote
that
the
law
does
not
require
the
Fed
to
grant
master
account
access
to
applicants,
and
that
the
evidence
leaned
toward
the
Kansas
City
Fed
making
the
decision,
rather
than
the
board
of
governors.

“Thus,
unless
Federal
Reserve
Banks
possess
discretion
to
deny
or
reject
a
master
account
application,
state
chartering
laws
would
be
the
only
layer
of
insulation
for
the
U.S.
financial
system,”
the
judge
wrote.
“And
in
that
scenario,
one
can
readily
foresee
a
‘race
to
the
bottom’
among
states
and
politicians
to
attract
business
by
reducing
state
chartering
burdens
through
lax
legislation,
allowing
minimally
regulated
institutions
to
gain
ready
access
to
the
central
bank’s
balances
and
Federal
Reserve
services.”

In
a
statement,
Custodia
spokesperson
Nathan
Miller
said,
“challenging
the
Fed’s
strong-arm
tactics
has
always
been
an
uphill
battle,
but
Custodia
Bank
remains
committed
to
our
vision
of
creating
a
safe,
tech-enabled
bank.
We
are
reviewing
the
Court’s
decision
and
all
of
our
options,
including
appeal.”