A significant development has taken place in the ongoing legal battle between Custodia Bank and the Federal Reserve, as a Wyoming federal judge denied dismissal motions from both the Fed and the Federal Reserve Bank of Kansas City. Custodia Bank, founded by former Morgan Stanley executive and early Bitcoin proponent Caitlin Long, sued the Fed in June 2022, alleging an “unlawful delay” in processing its application for a master account.
The case raises questions about the Fed’s role in overseeing the growth of digital asset banks like Custodia, which was established to provide account services for cryptocurrency companies and serve as a bridge to the United States dollar. According to Nathan Miller, a spokesperson for Custodia Bank, the Fed’s rejection of its application reveals its attempt to provide itself a veto over state bank chartering decisions.
On the other side of the argument, the Fed’s rejection of Custodia Bank’s application cites concerns about the bank’s involvement in the cryptocurrency space and maintains that the bank’s application was inconsistent with the required factors under existing law.
Custodia Bank is one of Wyoming’s first Special Purpose Depository Institutions (SPDIs), or “blockchain banks”. SPDIs were created to serve businesses unable to secure Federal Deposit Insurance Corporation (FDIC) banking services because of their dealings with cryptocurrency. Wyoming has already stood up in support of Custodia Bank, requesting to intervene in the case and defend the state’s framework that allows certain crypto firms to qualify as state-chartered banks.
Miller argues that the Fed has never held the authority to block banks that have already been validly chartered by state banking authorities. He calls the Fed’s actions a “power grab” and notes that Custodia Bank received its charter after more than 150 prospective applicants were rejected by the Wyoming Division of Banking.
The outcome of this case could have significant implications for the future adoption and growth of blockchain banks and the role of the Federal Reserve when it comes to vetting these institutions. What remains to be seen is whether the judge’s decision to reject the Fed’s dismissal motion will mark a turning point in the case or simply serve as another development in the ongoing tug-of-war between regulators and crypto-focused banks like Custodia.
Source: Cointelegraph
