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The U.S. District Court for the District of Wyoming dismissed Custodia Bank’s plea for a Federal Reserve master account.&nbsp;
Custodia Bank, specializing in digital assets, has been seeking a master account from the Federal Reserve since 2020. The account, often described as “a bank account for banks,” is crucial for accessing the Fed’s payment systems.
The Wyoming-based bank had argued that without a master account, it would be at a significant disadvantage — particularly in offering custodial services for crypto-assets compared to traditional banking institutions.&nbsp;
It contended that such a setback would relegate it to a “second-class citizen” status, dependent on intermediary financial institutions. It also said that this dependency undermines its operational autonomy and efficiency.
The Federal Reserve <a href="https://crypto.news/federal-reserve-bars-custodia-says-operations-inconsistent-with-the-law/" target="_blank" rel="noopener noreferrer nofollow">rejected</a> the application in January 2023, citing concerns about Custodia’s involvement in the cryptocurrency sector, which it deemed inconsistent with regulatory requirements.&nbsp;
Regulators grew especially bearish toward the cryptocurrency sector after 2022 saw Celsius crash; Luna and TerraUSD collapse; and FTX go <a href="https://crypto.news/ftx-files-for-chapter-11-bankruptcy-taking-down-about-130-companies-with-it/" data-type="link" data-id="https://crypto.news/ftx-files-for-chapter-11-bankruptcy-taking-down-about-130-companies-with-it/" rel="noopener noreferrer nofollow">bankrupt</a> (BlockFi also went <a href="https://crypto.news/blockfi-declares-bankruptcy-as-ftx-wildfire-spreads/" data-type="link" data-id="https://crypto.news/blockfi-declares-bankruptcy-as-ftx-wildfire-spreads/" rel="noopener noreferrer nofollow">bankrupt</a>).
Custodia then sued the Federal Reserve, alleging violations of the Administrative Procedures Act (APA), and sought a writ of mandamus compelling the Federal Reserve Bank of Kansas City (FRBKC) to grant the master account.&nbsp;
You might also like: <a href="https://crypto.news/prisma-finance-hacker-demands-apology-after-11m-breach/" rel="noopener noreferrer nofollow"> Prisma Finance hacker demands live conference, apology after $11m breach </a>
The March 29 <a href="https://www.dropbox.com/scl/fi/e4eik55fl6gfapyb37ctc/show_temp-13.pdf?rlkey=2gh2k2o1emjsd7c4zvldbkq0p&amp;dl=0" target="_blank" rel="noopener noreferrer nofollow">ruling</a>, delivered by Chief Judge Scott Skavdahl, sided with the Federal Reserve, dismissing Custodia’s claim that it had not followed appropriate administrative procedures. Judge Skavdahl also stated that the FRBKC had the legal authority to deny Custodia’s application.&nbsp;
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 🚨BREAKING: The judge in the <a href="https://twitter.com/custodiabank?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">@custodiabank</a> vs. <a href="https://twitter.com/federalreserve?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">@federalreserve</a> has mostly sided with the Fed in summary judgment and DENIED Custodia’s petition for review of its APA Claim and its Motion for Judgment on its Statutory Mandamus Claim. Full decision here:<a href="https://t.co/K1qBrSk23I" target="_blank" rel="noopener noreferrer nofollow">https://t.co/K1qBrSk23I</a>— Eleanor Terrett (@EleanorTerrett) <a href="https://twitter.com/EleanorTerrett/status/1773803778874933335?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">March 29, 2024</a>
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The ruling addressed Custodia’s claim that, as an officially chartered state bank, it was entitled to a master account under federal law. The judge countered this argument, emphasizing that granting master accounts solely based on state chartering laws could lead to regulatory loopholes and potential risks for the broader financial system.
The rejection highlights the broader challenges faced by blockchain-based financial institutions like Custodia, which is one of Wyoming’s pioneering Special Purpose Depository Institutions (SPDIs). It was established to provide banking services to crypto businesses unable to access traditional banking relationships.
This ruling comes against a backdrop of legislative efforts in Wyoming to address challenges faced by blockchain-based businesses. Earlier in March, the state <a href="https://crypto.news/wyoming-bill-dao-legal-entities/" target="_blank" rel="noopener noreferrer nofollow">passed</a> a landmark crypto bill to bring decentralized autonomous organizations (DAOs) under existing laws.
Additionally, Wyoming enacted legislation to <a href="https://crypto.news/crypto-friendly-wyoming-passes-bill-to-protect-private-keys/" target="_blank" rel="noopener noreferrer nofollow">protect</a> the rights of Bitcoin (<a href="https://crypto.news/price/bitcoin/" target="_blank" rel="noopener noreferrer nofollow">BTC</a>) and other digital asset holders by prohibiting the forced disclosure of private keys to unauthorized entities.
“Challenging the Fed’s strong-arm tactics has always been an uphill battle, but Custodia Bank remains committed to our vision of creating a safe, tech-enabled bank. We are reviewing the Court’s decision and all of our options, including appeal,” said Nathan Miller, a spokesperson for Custodia Bank, told crypto.news.
Read more: <a href="https://crypto.news/uk-freezes-craig-wright-assets/" rel="noopener noreferrer nofollow"> UK court freezes $7.6m of Craig Wright’s assets </a>

US court shoots down Custodia Bank bid for Fed master account

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