Fed Crushes Caitlin Long’s Crypto Bank’s 5-Year Bid for Master Account

Core Viewpoint - A U.S. appellate court has ruled against Custodia Bank in its attempt to gain direct access to the Federal Reserve's payment system, marking a significant setback in the bank's efforts to obtain a master account necessary for participation in the U.S. banking system [1][2]. Group 1: Legal Proceedings - The U.S. Court of Appeals for the Tenth Circuit upheld a previous ruling from the District of Wyoming that supported the Federal Reserve's decision to deny Custodia's application [1][2]. - The ruling confirms that the Federal Reserve has broad discretion in determining which financial institutions can access its payment infrastructure [4]. Group 2: Custodia Bank's Background - Custodia Bank, previously known as Avanti Bank, applied for a master account in October 2020 after receiving a special-purpose depository institution (SPDI) charter from Wyoming [4]. - The application was delayed for over 19 months before being formally rejected by the Federal Reserve Bank of Kansas City in January 2023 due to concerns about safety and soundness related to the bank's focus on digital assets [5]. Group 3: Federal Reserve's Concerns - The Federal Reserve cited that Custodia's business model was overly reliant on volatile cryptocurrency markets and lacked adequate controls to manage risks associated with illicit finance [5]. - The Fed also highlighted Custodia's limited experience in traditional risk management and the potential systemic risks of granting access to a crypto-centered institution [5]. Group 4: Custodia's Response - Custodia Bank filed a lawsuit against the Federal Reserve in June 2022, claiming an unlawful delay and arguing that eligible institutions are entitled to a master account under federal law [6]. - Following the Wyoming court's ruling in favor of the Federal Reserve in March 2024, Custodia appealed, contending that the decision granted excessive discretion to the central bank over market access [6].