A federal appeals court in Denver, USA, rejected a lawsuit filed by cryptocurrency bank Custodia seeking a “master account” from the Fed, upholding a lower court's decision.
The decision stated that while Custodia is technically a qualifying bank, the Fed has discretionary authority to grant such accounts.
Ripple also recently called for cryptocurrency companies to be able to obtain master accounts.
The three-judge panel emphasized that Custodia had failed to gain access to the Fed's services. The court stated that the Fed could deny this privilege in cases where it could compromise the security of the banking system. The Fed's Kansas City branch had concluded that Custodia's crypto-focused business model posed “excessive risk” to the US banking system.
Master accounts give all federal banks direct access to the Fed's payment system and nationwide operations. However, no crypto-focused bank has been granted this access to date. Custodia currently operates under a special purpose depository institution (SPDI) license from the state of Wyoming.
The court's two-to-one decision was issued by a panel of judges, most of whom were appointed by Republican presidents. Judge David Ebel, appointed by former President Ronald Reagan, penned the decision. Ebel stated, “The clear language of the relevant statutes grants the Federal Reserve Banks the discretion to deny master account access to eligible institutions.”
The sole judge to dissent, Timothy Tymkovich (appointed by George W. Bush), argued that the Fed's payment services should be available to all non-member banks that are “eligible.”
While Custodia's legal battle was unsuccessful, the Fed's stance on crypto could shift in the coming days. With Chairman Jerome Powell's term ending, Fed governors closer to the White House are expected to ease the central bank's anti-crypto policies.
*This is not investment advice.
