Custodia Bank appeals to higher court following setback in March

Custodia Bank, a financial institution founded by Caitlin Long in 2020 to cater to crypto firms and facilitate transactions in US dollars, has filed an appeal with the United States Tenth Circuit Court of Appeals. The appeal challenges a previous decision by Judge Scott Skavdahl of the District Court for the District of Wyoming, who denied Custodia’s request for a Federal Reserve master account.
A Federal Reserve master account allows banks to access Federal Reserve services, including the Fedwire and the Automated Clearing House (ACH) network for electronic payments. These services are crucial for banks to conduct their operations smoothly. In fact, in 2022 alone, Fedwire processed over 196 million transfers valued at more than $1 quadrillion.
Custodia Bank had initially applied for a Federal Reserve master account in October 2020. However, after facing what it deemed an “unlawful delay” in the processing of its application, the bank decided to take legal action against the Federal Reserve in June 2022. Unfortunately, in 2023, the Fed rejected Custodia’s membership application, citing inconsistencies with the required factors under the law. The bank’s subsequent plea for a declaratory judgment was also dismissed by Judge Skavdahl on March 29.
Not having a master account has significant implications for Custodia Bank, as it hampers its ability to offer custodial services for digital assets similar to other banks. This limitation puts the bank at a competitive disadvantage in the market. In contrast, banks like the Bank of New York Mellon already provide custody services for digital assets.
Apart from the appeal, Custodia Bank also filed an objection to a bill of costs presented by the Federal Reserve Bank of Kansas City. The bill seeks reimbursement of $25,728.25 for deposition transcript costs. Custodia argues that it is premature to award these costs at this stage of the legal proceedings.
Overall, Custodia Bank’s legal battle to join the US banking system highlights the potential risks and challenges associated with engaging with decentralized autonomous organizations (DAOs).