Custodia files appeal after judge rules bank is not entitled to Fed master account

Digital asset bank Custodia filed a notice of appeal Friday after a Wyoming judge ruled last month that the bank was not entitled to a Federal Reserve master account. 

Lawyers for Custodia filed the notice in the U.S. District Court for the District of Wyoming, marking the most recent move in a multi-year debate over whether the bank could access the central bank's payment systems. 

In a judgment filed in March, Judge Scott Skavdahl said Federal Reserve Banks have discretion in whether or not to grant master accounts. Those master accounts allow institutions direct access to the Fed's payment systems and provide the most direct access to the U.S.'s money supply available to financial institutions. Those without master accounts are often forced to rely on partner banks with master accounts to provide services. 

"If Custodia's position was correct, it would effectively mean that every depository institution chartered under the laws of a state, regardless of how soundly crafted, is entitled to a master account allowing it direct access to the federal financial system," the judge said in a ruling last month. 

A long road

Custodia, founded by Wall Street veteran Caitlin Long, filed its application for a master account with the Kansas City Fed in 2020. In the spring of 2021, the Federal Reserve Board of Governors intervened and sought control of the decision-making process. 

Custodia then sued the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City in 2022 for delaying a decision on its application for a central bank master account. 

Custodia's request for a master account was later denied in January 2023. 

Custodia is subject to Wyoming law and is a special purpose depository institution, which are banks that receive deposits and can custody, among other activities. However, they cannot lend "customer fiat deposits" and have to hold those deposits 100 percent in reserve, according to Custodia's website.