The United States District Court decided against Custodia Bank’s request to get a Federal Reserve master account, a critical asset for banks that need access to the Fed’s payment systems. Judge Scott Skavdahl’s finding on March 29 also denied the digital asset bank’s plea for a declaratory judgment.
Custodia Bank, which aims to manage cryptocurrency-assets in the same way that traditional banks do money, argues the lack of a master account severely hinders its ability to operate. Rendering relies on intermediary banks. This status, according to Custodia, effectively puts it at a competitive disadvantage in the banking industry.
The denial comes after the Federal Reserve Bank of Kansas City denied Custodia’s application in January 2023. The Federal Reserve expressed worry about Custodia’s cryptocurrencycurrency-related activities, believing them incompatible with legal norms for such banking facilities. Custodia’s application, filed in October 2020, intended to use the Fedwire network, which handled over 193 million transactions last year.
Custodia, one of Wyoming’s pioneering Special Purpose Depository Institutions (SPDIs) or “blockchain banks,” represents a segment of financial institutions geared to support firms dealing in cryptocurrencycurrencies, which are frequently prohibited from Federal Deposit Insurance Corporation (FDIC) services.
Despite the court’s decision, Custodia Bank has stated that it intends to pursue all available alternatives moving ahead, highlighting its commitment to integrating digital assets within regulated banking systems.
