Custodia files a lawsuit against the federal reserve as regards master account and the perceived delay in granting them the account.
Custodia, a bitcoin bank, has filed a lawsuit against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, alleging that they have “unlawfully” delayed responding to its application for a master account with the Fed for 19 months.
According to the lawsuit, the Federal Reserve has a legal requirement to act within a year, and claims on its own papers that approving a master account application usually takes only five to seven days. According to Custodia’s lawsuit, the Kansas City Fed was processing its application until the spring of 2021, when the main Federal Reserve became involved. The lawsuit aims to compel the Federal Reserve and its Kansas City office to act on the application–and, in the end, approve it.
Custodia would be the first bitcoin bank to obtain a master account if it wins its lawsuit or is awarded one in any other way. The lawsuit–and the Fed’s response to it–could help define the future of banking as central banks worldwide seek to combine the greatest innovation that bitcoin and other blockchain-powered currencies provide with the finest of central management.
“Through this lawsuit, Custodia seeks to ensure that its Federal Reserve master account application receives the fair dealing and due process guaranteed to it by both federal statute and the U.S. Constitution” “Custodia has satisfied every rule applicable to it and has gone beyond by applying to become a Fed member bank.”
Custodia Bank was created in 2020 under the name Avanti Financial Group by Morgan Stanley veteran Caitlin Long. Custodia was formed under Wyoming state legislation Long helped create that compelled this new type of bank to maintain custody of the cryptocurrency it owns, unlike typical banks that make the majority of their money from loans. She raised $37 million in a Series A round in March 2021 from Binance.US, Morgan Creek Digital, Slow Ventures, Coinbase Ventures, and Susquehanna, bringing her total funding to $44 million.
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Custodia’s 44-page lawsuit lays out eight claims for relief or potential options for the Fed to resolve the issue. The first allegation raises a larger question about how the Federal Reserve banks operate and whether they are subject to federal agency norms such as the Administrative Procedure Act and due process obligations.
According to the lawsuit, if the Kansas City Federal Reserve is considered a private entity (its board is made up of a majority of the private sector, non-presidentially appointed officials), it can’t make final decisions on master account issues without the approval of the Federal Reserve Board, or it is subject to the higher level of scrutiny afforded to governmental actors when exercising governmental powers.
The lawsuit claims, “This delay in processing Custodia’s master account application is resulting in substantial, ongoing injury to Custodia,” “The immediate injury is that the delay has forced Custodia to defer its solo entry into the financial services market in favor of a decidedly second-best and far more expensive alternative: launching with a correspondent bank—which has a master account— while Custodia awaits a decision on its long-pending application.”
Christopher is a highly skilled writer who possesses a deep understanding of the interplay between financial markets and technology. His goal in writing is to deliver expert analysis through written content that is easy for readers to comprehend.
With a keen interest in cryptocurrencies and the blockchain industry, he has been among the earliest contributors to the Coin Decimal Crypto Blog.
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