Federal Appeals Court Dismisses Custodia’s Quest for Master Account
In a significant ruling on Friday, a federal appeals court in Denver dismissed the cryptocurrency bank Custodia’s quest for a coveted master account from the Federal Reserve, echoing an earlier decision by a district court. The three-judge panel determined that eligibility for a master account does not inherently guarantee access. The judges supported the Federal Reserve’s position, asserting that the central bank retains the authority to refuse such privileges when deemed appropriate. The Kansas City branch of the Fed previously identified risks posed by Custodia’s cryptocurrency-centered operations as a potential threat to the stability of the U.S. banking sector.
Importance of Master Accounts
Master accounts are critical for federally chartered banks as they enable direct transactions and access to Federal Reserve services, providing essential tools for nationwide financial operations. Despite numerous applications, no banks dedicated to cryptocurrency have successfully obtained this account type from the Fed to date. Custodia currently functions under a special-purpose depository institution (SPDI) charter, which was issued by the state of Wyoming.
Court’s Ruling and Dissent
The ruling, which ultimately upheld the federal district court’s earlier judgment, was passed with a 2-1 majority, featuring judges predominantly appointed by Republican administrations. Judge David Ebel, who was nominated by former President Ronald Reagan, articulated the court’s opinion, stating that the language in the relevant statutes grants Federal Reserve Banks the discretion to deny access to master accounts.
In his dissent, Judge Timothy Tymkovich, who was appointed by President George W. Bush, contended that a specific statute mandates the Fed to provide payment services to all qualified non-member banks, including Custodia. He remarked on the contemporary nature of the case, noting that it deals with cryptocurrency and digital innovations, yet reflects longstanding issues in banking regulation.
Custodia’s Response and Future Outlook
Following the verdict, Custodia’s founder Caitlin Long expressed disappointment, commenting that although the outcome was not what the company had anticipated, the strong dissenting opinion provides a glimmer of hope. She noted the possibility of seeking a rehearing due to a perceived split in the jurisdiction following a related ruling by a different judge.
Looking ahead, the ongoing struggle for crypto master accounts may reach resolution outside the courtroom. Speculations arise that the Federal Reserve’s stance might shift significantly once current chair Jerome Powell‘s term concludes. Given President Trump’s prior criticisms of Powell, it is anticipated that future governors more aligned with the current administration may revise the Fed’s policy hesitations regarding cryptocurrencies. Earlier this month, Fed Governor Christopher Waller hinted at the introduction of specialized “skinny” master accounts for innovative banks focused on cryptocurrency, suggesting an accelerated approach that could radically alter the landscape for crypto financial institutions.
