A federal appeals court in Denver has upheld a lower court’s ruling, rejecting a lawsuit filed by cryptocurrency bank Custodea seeking to provide a “master account” to the Federal Reserve.
The decision states that while Custody is technically an eligible bank, the Fed has discretion to award such accounts.
Ripple recently called on crypto companies to obtain master accounts.
The three-judge panel stressed that Mr. Custodia was denied access to the Fed’s services. The court said the Fed could deny this privilege if it could jeopardize the security of the banking system. The Federal Reserve’s Kansas City branch had concluded that Custodia’s cryptocurrency-centric business model posed “undue risk” to the U.S. banking system.
The master account gives all federal banks direct access to the Fed’s payment systems and nationwide operations. However, so far, banks specializing in cryptocurrencies have not been granted this access. Custodia currently operates under a Special Purpose Depository Institution (SPDI) license from the State of Wyoming.
The court’s 2-1 decision was handed down by a panel of judges, most of whom were appointed by Republican presidents. Judge David Ebell, appointed by former President Ronald Reagan, wrote the decision. “The clear language of the relevant statutes gives the Federal Reserve the discretion to deny access to master accounts to eligible institutions,” Ebell said.
The sole dissenting judge, Timothy Timkovich (appointed by President George W. Bush), argued that the Fed’s payment services should be available to all “eligible” nonmember banks.
Although Custodia’s legal battle was unsuccessful, the Fed’s stance on cryptocurrencies could change within days. With the end of Chairman Jerome Powell’s term, Fed directors close to the White House are expected to ease the central bank’s anti-cryptocurrency policies.
*This is not investment advice.
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