US Appeals Court Upholds Fed’s Decision to Deny Custodia Bank a Master Account
A federal appeals court in Denver has ruled in favor of the Federal Reserve’s decision to deny crypto-focused bank Custodia access to a primary account, marking a significant setback for the Wyoming-based institution’s efforts to gain direct access to the US central banking system. The 10th US Circuit Court of Appeals agreed with a lower court that the Fed has discretion over which financial institutions can maintain master accounts, which provide direct access to Fed services such as payment processing and wire transfers.
Key Takeaways from the Ruling
The ruling, which was made in a 2-1 decision, has significant implications for crypto-focused banks like Custodia. The key takeaways from the ruling include:
- The 10th US Circuit Court of Appeals ruled that the Fed has discretion to deny crypto-focused banks access to primary accounts.
- Judge David Ebel wrote that the Fed’s power to deny such requests was critical to “protecting the financial system.”
- The ruling keeps crypto banks like Custodia out of the Fed’s payment systems.
Judge Ebel’s Ruling and Its Implications
Judge David Ebel, appointed by former President Ronald Reagan, wrote that the law gives the Fed the authority to “reject requests for access to principal accounts of eligible entities” to protect financial stability. Ebel stated that the Fed’s decision to deny Custodia a master account was within its discretion and that the court would not second-guess the central bank’s judgment. The ruling has significant implications for the crypto industry, as it suggests that the Fed has broad authority to regulate and oversee crypto-focused banks.
Fed Governor Floats “Skinny” Master Accounts for Crypto-Focused Banks
In a related development, Fed Governor Christopher Waller announced that the central bank is planning to introduce new “payments accounts” or “skinny master accounts” for statutory institutions. These limited-access accounts would connect companies directly to the Fed’s payment channels while maintaining strict safeguards to reduce systemic risks. The proposal is seen as a significant shift in the Fed’s approach to crypto-focused banks and could potentially provide a new pathway for these institutions to access the US payments infrastructure.
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