U.S. court: "Fed has no obligation to open a master account for Custodia Bank"

JH Kim

Summary

A U.S. court reported that in the lawsuit filed by Custodia Bank, it ruled that the Fed has no obligation to approve master account requests.
It said the ruling is expected to further restrict crypto-friendly banks' access to the Fed's systems.
Industry observers said the decision is likely to spark legal disputes surrounding the Fed's authority to approve bank accounts.

A U.S. court sided with the Federal Reserve (Fed) in a lawsuit brought by Custodia Bank, a bank known to be crypto-friendly.

On the 30th (local time), Crypto in America host Eleanor Terrett reported that the U.S. Court of Appeals for the Tenth Circuit ruled 2-1 in favor of the Fed. The ruling reaffirmed that the Fed is not obligated to approve private banks' requests to open master accounts.

Custodia Bank sued in 2022, arguing that the Fed's refusal to open a master account for it was improper. A master account is an account that allows a bank to directly access the Fed's payment system to process transactions; through such an account, a bank can make payments and transfer funds without intermediaries.

The Fed at the time rejected opening the account, determining that "Custodia's business model does not adequately manage crypto-related risks." Custodia Bank responded by claiming that "the Fed is discriminating against a specific industry" and took legal action.

As a result of the ruling, Custodia's appeal was dismissed, and crypto-friendly banks' attempts to access the Fed's systems are expected to face further restrictions. However, industry observers say the decision is likely to spark legal disputes in the future over the Fed's authority to approve bank accounts.