The Federal Reserve Bank of Kansas City has denied Custodia Bank’s request for a master account, according to a US district court filing.
The reserve bank disclosed the rejection in a motion to dismiss filed with the Wyoming Federal District Court on Friday afternoon. Custody is suing both the Kansas City Fed and the Fed’s Board of Governors over its long-delayed application for a master account, which grants access to the Fed’s various financial services, including its payment system.
In their filing, the Kansas City Fed and Board of Governors argue that the ruling should render Custodia’s lawsuit moot. The bank had tried to pressure the Fed into making a decision on its two-year application, arguing that it had been unreasonably delayed.
Bloomberg News
The Kansas City Fed’s denial of Custody’s master account request occurred just a few hours later the Board of Governors rejected the Wyoming-based digital asset bank’s offer to become a state member bank. The appointment would have made the Fed Custodia the primary supervisor and, according to the central bank recently enacted application review framework — made it easier for the bank to receive a master account.
The Kansas City Fed’s court filing did not disclose the reason for the denial. The reserve bank declined to comment on the decision on Friday afternoon.
For its rejection decision, the Governing Board cited the security and solidity
s concerns related to Custody’s “untested” business model, which involves providing custody services for crypto assets and calls for the eventual creation of a stablecoin.
Custodia filed its lawsuit against the Fed in June, alleging that not only had the Kansas City Fed taken too long to review the matter, but the Board of Governors had intervened, violating Fed law. established policy that the regional reserve banks have the exclusive authority to grant master accounts.
Both the Board and the Kansas City Federal Reserve have made several attempts dismiss the case against them, but the matter has survived to go to trial — a rarity for legal challenges involving the central bank.
Following a pre-trial hearing earlier this month, the parties have begun discovery process, which involves requesting and disclosing information of material importance to the claim. The disclosures were scheduled for this summer, with a tentative trial date set for November 6.
Along with the decisions by both the Kansas City Fed and the Board of Governors, the Fed also issued a policy statement Friday, requiring federally supervised state banks without federal deposit insurance to be subject to the Same rules on crypto activity as those that are federally insured and regulated. The move was designed to align the supervisory regimes of the Fed and the Office of the Comptroller of the Currency.
The White House also announced a “road map” to mitigate the risks of cryptocurrencies, in which it directs regulatory agencies to “increase enforcement” and issue guidance on best practices in handling digital assets. He also called on Congress to empower regulators to have greater oversight of the crypto space without giving the green light to more engagement with the sector by major institutions.
