Custodia Bank filed a certiorari petition to the Supreme Court challenging the Federal Reserve's authority to deny master account access, escalating a 6-year legal dispute over the institution's ability to operate as a federally chartered bank. The petition argues that Federal Reserve Bank presidents possess 'unbounded, unreviewable discretion' to block banks from accessing the Fed's payment services, including Fedwire, FedNow, and FedACH. The Supreme Court will decide in October whether to consider the case. The Fed denied Custodia's master account in 2023, citing 'significant safety and soundness risks' from the bank's crypto-focused business model. The 10th Circuit Court of Appeals sided with the Federal Reserve Bank of Kansas City in 2024, rejecting Custodia's prior appeal.
Custodia Bank Files Supreme Court Petition Challenging Fed Master Account Authority
Custodia Bank filed a certiorari petition to the Supreme Court to determine the extent of power Federal Reserve Bank presidents hold in approving master accounts. Master accounts enable financial institutions to move funds on central bank rails and access the Federal Reserve's suite of services, including Fedwire, FedNow, and FedACH. The bank hired law firm Davis Polk to lead the legal effort. The filing argues that the continuous denial of a master account 'works a fundamental shift in the balance between state and federal authority over banking,' questioning the power levels of Federal Reserve Bank presidents and affecting the feasibility and business models of other innovative financial institutions. The petition states the case 'presents an exceptionally important question: whether regional Federal Reserve Bank presidents possess unbounded, unreviewable discretion to deny disfavored banks access to the Federal Reserve's payment services.' The filing characterizes the Fed's decisions as a potential 'abuse of authority.'
Federal Reserve Denied Custodia Master Account in 2023
The Federal Reserve Board denied Custodia Bank access to a master account in 2023. The Fed stated that 'the firm's novel business model and proposed focus on crypto-assets presented significant safety and soundness risks.' This denial prevented Custodia from accessing the Federal Reserve's payment infrastructure, which is essential for the bank's operations as a federally chartered institution.
10th Circuit Court Sided with Federal Reserve Bank of Kansas City in 2024
Custodia Bank appealed the 2023 denial to the 10th Circuit Court of Appeals. The court sided with the Federal Reserve Bank of Kansas City in 2024, upholding the Fed's decision to deny the master account. This ruling represented a setback in Custodia's 6-year legal battle to become a federally chartered institution with full access to Federal Reserve services.
Supreme Court Will Decide Case Review in October
The Supreme Court will decide in October whether to consider Custodia Bank's certiorari petition. This decision represents the final stage in the bank's 6-year effort to challenge the Federal Reserve's denial of master account access and to clarify the authority of Federal Reserve Bank presidents over such approvals.
FAQ
What did Custodia Bank file with the Supreme Court?
Custodia Bank filed a certiorari petition to the Supreme Court challenging the Federal Reserve's authority to deny master account access. The petition argues that Federal Reserve Bank presidents possess 'unbounded, unreviewable discretion' to block banks from accessing the Fed's payment services.
Why did the Federal Reserve deny Custodia's master account in 2023?
The Federal Reserve Board denied Custodia's master account in 2023, stating that 'the firm's novel business model and proposed focus on crypto-assets presented significant safety and soundness risks.'
When will the Supreme Court decide on Custodia's case?
The Supreme Court will decide in October whether to consider Custodia Bank's certiorari petition challenging the Fed's master account denial.
