Custodia Bank Seeks Supreme Court Review of Fed Master Account Denial

Custodia Bank, a US crypto-focused bank, has asked the Supreme Court to review what it calls the Federal Reserve’s unlawful denial of access to the central bank’s payments system.

Bloomberg reported on July 10 that Custodia filed a petition for certiorari with the US Supreme Court on July 1. The bank argues that the Fed abused its authority by refusing to grant a master account, which is required to access the payments network.

Custodia is a Wyoming-chartered Special Purpose Depository Institution, or SPDI, in a state that has pursued policies favorable to the digital-asset industry. It applied for a master account at the Federal Reserve Bank of Kansas City in 2020, but the request was denied because its business model was too heavily concentrated in crypto-related activities.

Custodia sued, but the US Court of Appeals for the 10th Circuit ruled for the Fed. In its Supreme Court appeal, the bank said the case presents a major constitutional question: whether a regional Federal Reserve bank can effectively override a state’s decision to charter a bank by denying it access to essential financial infrastructure.

Custodia also said Wyoming has put in place a range of measures to become a hub for the US crypto industry and has lawfully chartered banks such as Custodia. But, it said, the president of the Kansas City Fed opposed Wyoming’s policy judgment.

The bank added that the key issue is whether a regional Federal Reserve bank president has unfettered discretion to deny a master account to an otherwise eligible bank. It said the case gives the court a chance to address what it described as an abuse of the Fed’s authority.

Under its usual schedule, the Supreme Court is set to decide in October whether to hear the case after its roughly three-month summer recess.