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Custodia Bank has taken a step forward in its legal battle against the Federal Reserve, as a Wyoming federal judge denied dismissal motions from both the Federal Reserve and the Federal Reserve Bank of Kansas City.
The Digital Asset Bank sued the Federal Reserve in June 2022, alleging an “illegal delay” in processing an application for its master account. In 2020, Caitlin Long, a former Morgan Stanley and early Bitcoin proponent, founded a bank to provide account services to crypto companies and serve as a bridge to the US dollar.
“The Federal Reserve’s latest motion to dismiss Custodia Bank’s lawsuit has again been denied. We are pleased that the Fed’s attempt to impose veto power on decisions to establish state-owned banks will now be tested in federal court,” Custodia Bank spokesman Nathan Miller said in a statement to Cointelegraph.
Custodia applied for a Federal Reserve Master Account in October 2020. If approved, the bank will be able to use the Federal Reserve’s payment system, the FedWire network, which processed more than 196 million transactions last year. In January 2023, the Fed rejected the membership application, saying it was “inconsistent with the required factors under the law” and citing the bank’s involvement in the cryptocurrency space.
Custodia was one of the first special purpose depository institutions (SPDIs) in Wyoming, also known as “blockchain banks”. SPDIs were created to serve businesses that are unable to provide Federal Deposit Insurance Corporation (FDIC) banking services due to their cryptocurrency transactions. In April, the state of Wyoming demanded to intervene in a case between the bank and the Fed, defending its structure allowing some crypto firms to qualify as state-registered banks.
Miller said the Fed is rethinking federal laws to give itself special powers it never received from Congress after decades of automatically granting master accounts to registered banks.
“The Fed has never had such power in U.S. history, and it doesn’t need discretion to block banks that have already been legally chartered by government banking authorities that strictly separate the wheat from the chaff,” Miller continued, adding that Custodia received its banking charter. . after more than 150 potential applicants were rejected by the Wyoming Banking Department: “We look forward to hearing this Fed power grab in court,” he said.