A Stand-up Showdown
Custodia Bank, the digital darling of Wyoming, has thrown down the gauntlet in its legal tussle with the Federal Reserve. In a surprising twist, a Wyoming federal judge just pulled the rug out from under the Fed and the Federal Reserve Bank of Kansas City, denying their attempts to dismiss Custodia’s case. It’s like watching a soap opera where the villain just can’t seem to win.
The Backstory: A Tale of Delays
In June 2022, Custodia Bank decided it was high time to sue the Federal Reserve (talk about a bold move!). Their bone to pick? An alleged “unlawful delay” in processing their application for a master account. This was no ordinary bank; founded back in 2020 by Caitlin Long, a former Morgan Stanley executive, the bank aims to connect the world of digital assets with good old American dollars—essentially serving as the bridge over troubled waters for crypto companies.
A Spokesperson Speaks Out
Nathan Miller, the spokesperson for Custodia Bank, expressed his team’s satisfaction with the judge’s ruling. “The Federal Reserve’s latest motion to dismiss Custodia Bank’s lawsuit was once again rejected,” he stated. Sounds like the Fed might need to think about modifying their game plan. “We are pleased that the Fed’s attempt to provide itself a veto over state bank chartering decisions will now be tested in federal court.” Watching the Fed squirm might just be America’s new favorite pastime!
The Application and Its Implications
So, what’s all the fuss about? Well, Custodia submitted its application for a Federal Reserve master account back in October 2020. If granted, they could access the Fed’s payment system—specifically, the Fedwire network, which processed a staggering 196 million transactions last year. However, in January 2023, the Fed hit the brakes, denying the application on grounds that it was “inconsistent with the required factors under the law.” Spoiler: It was mostly due to Custodia’s crypto connections.
Wyoming to the Rescue
Custodia is one of Wyoming’s pioneering “blockchain banks,” also known as Special Purpose Depository Institutions (SPDIs). These innovative entities were birthed to cater to businesses locked out of traditional banking due to their digital ventures. Interestingly, Wyoming has jumped into the fray, requesting to intervene in the Custodia vs. Fed saga—backing its framework that allows certain crypto firms to be recognized as state-chartered banks.
The Regulations Conundrum
Miller claims the Fed is playing a dangerous game by reinterpreting federal laws to assert authority they arguably haven’t been granted by Congress. “The Fed has never held such authority in U.S. history,” he noted, while advocating for the rights of state-chartered banks that have gone through the regulatory wringer to receive approval. He added that Custodia’s bank charter was awarded after the Wyoming Division of Banking rejected over 150 hopeful applicants. As the saying goes, ‘what doesn’t kill you makes you stronger,’ and Custodia is ready to tackle this legal heavyweight bout!
