Court Denies Dismissal Motion by Fed in Custodia Bank Lawsuit
Summary: Custodia Bank, a digital asset bank founded in 2020 by Caitlin Long, sued the Federal Reserve in June 2022 due to an "unlawful delay" in the approval of its master account. Fed has reinterpreted federal legislation to grant itself unique power as per industry experts. The Court denied dismissal motion filed by Fed.
Custodia Bank made progress in its legal battle against the Fed when a federal judge in Wyoming denied motions for dismissal filed by the Federal Reserve and the Federal Reserve Bank of Kansas City.
Due to an “unlawful delay” in the approval of its master account, the digital asset bank sued the Federal Reserve in June of 2022. The bank was founded in 2020 by Caitlin Long, a former executive at Morgan Stanley and an early proponent of cryptocurrencies, to serve as a conduit to the US dollar and provide account services to crypto firms.
Federal Reserve’s Fedwire Network Access
The Federal Reserve’s plea to dismiss Custodia Bank’s lawsuit was refused by the court once again. The Fed’s attempt to grant itself a veto over state bank chartering decisions will eventually be confirmed in federal court, much to the satisfaction of Custodia Bank’s spokesperson Nathan Miller.
Custodia requested a Federal Reserve master account in October 2020. If granted, the bank might begin using the Federal Reserve’s Fedwire network, a payment system that processed over 196 million transactions in 2022.
Rejection Due to Crypto Industry Link
Possibily, one of the grounds the Federal Reserve Board rejected the bank’s membership application in January 2023 was the institution’s involvement in the cryptocurrency industry. Since companies that deal in cryptocurrency are not eligible for FDIC-insured banking services, SPDIs were created to meet this demand.
To protect the structure that allows some cryptocurrency firms to qualify as state-chartered banks, the state of Wyoming asked to join the bank’s case against the Fed in April.
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Miller asserts that the Fed has reinterpreted federal legislation to grant itself unique power that it never received from Congress in order to justify its decades-long practise of automatically giving master accounts to licenced banks.
Moreover, Miller continued by claiming that Custodia was awarded its bank licence after the Wyoming Division of Banking rejected over 150 other banks.