- A US federal appeals court has ended Custodia Bank‘s five-year legal battle, ruling the Federal Reserve has discretion over granting master accounts.
- In a dissenting opinion, a judge stated that being denied a master account is “akin to a death sentence” for a bank.
- The ruling comes just after Kraken received a limited master account, raising hopes for similar “skinny” accounts for other crypto firms.
A US federal court has definitively ended Custodia Bank‘s five-year quest for a Federal Reserve master account. The US Court of Appeals for the Tenth Circuit said it would not hear the crypto-focused bank’s final appeal in a 7-3 vote on Friday.
This rejection affirms the Fed’s authority to deny direct access to its payment system. Custodia first applied for the indispensable account in October 2020 to settle transactions without intermediary banks.
However, multiple courts have now ruled the Fed retains discretion over these applications. Consequently, Custodia’s argument that the Monetary Control Act entitles it to an account has failed.
Meanwhile, Kraken became the first crypto platform to receive a master account from the Federal Reserve Bank of Kansas City on March 4. This move raised hopes that US regulators could offer “skinny” or limited master accounts to other crypto firms.
Judge Timothy Tymkovich wrote a strong dissenting opinion, siding with Custodia. He stated that “a master account is ‘indispensable’ for a bank’s operations” and denial is “akin to a death sentence.”
He noted the Fed initially told Custodia its application had “no showstoppers.” The judge added, “I do not agree that Reserve Banks have discretion over account applications.”
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