The post Custodia Bank Loses Appeal as Court Upholds Fed’s Crypto Account Rejection appeared first on Coinpedia Fintech News
The fight between Custodia Bank and the Federal Reserve just took another sharp turn, and it’s not in favor of crypto. A U.S. 10th Circuit Court of Appeals has sided with the Fed’s decision to deny Custodia Bank a master account, a move that effectively keeps crypto-focused banks locked out of the nation’s central banking system for now.
Why the U.S. Court Denies Custodia Bank a Master Account
Custodia applied for a Fed master account in 2020 to bridge crypto and traditional banking. After a 19-month wait, the Fed rejected the request in January 2023, citing weak risk management in its crypto-focused model.
Custodia sued, arguing the Fed had no right to deny eligible applicants. However, the appeals court recently ruled in favor of the Fed, upholding its authority to protect financial stability.
In its recent decision, the appeals court sided with the Fed.
- The court clarified that eligibility for a master account does not guarantee a right to access.
- Judge David Ebel stated the Fed’s discretion is essential to “protect the nation’s financial system.”
- The court found that the Federal Reserve used its supervisory power lawfully and that Custodia’s arguments did not override the Fed’s statutory authority.
Judge’s Dissent Keeps Hope Alive
Judge Timothy Tymkovich disagreed with the decision, saying the Fed’s rules require it to give access to all eligible banks. Custodia called the ruling “disappointing” but said it might appeal, as similar cases could set different precedents.
For now, the decision keeps crypto-focused banks locked out of the Fed’s payment system, a setback for those trying to bridge crypto with traditional finance.
Fed Considers Limited Access for Crypto Firms
Still, change could be coming. Fed Governor Christopher Waller has proposed introducing “skinny master accounts” for fintech and stablecoin firms. These accounts would allow limited, highly regulated access to the Fed’s payment systems, with strict conditions like no overdrafts, no interest, and capped balances.
If implemented, it could represent the Fed’s cautious first move toward engaging with the crypto sector, offering access, but under tight control.
