Custodia Bank Challenges Federal Reserve’s Authority in Master Account Dispute

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As a researcher with a background in banking law, I find Custodia Bank’s appeal to the 10th Circuit Court of Appeals an intriguing development. The case raises significant questions regarding the dual banking system and the Federal Reserve’s power to deny master accounts to state-chartered banks.

Digital banking company Custodia Bank has submitted an application to the 10th Circuit Court of Appeals in response to a ruling made by a Wyoming judge. The judge previously granted the Federal Reserve the authority to reject Custodia’s application for a master account. In this new appeal, Custodia is seeking to overturn the judge’s decision and secure approval for their request.

Custodia Bank Appeals to 10th Circuit Court

Custodia’s CEO, Caitodian Long, has brought on board two skilled lawyers with a proven track record of presenting cases before the Supreme Court, to act as her representatives in this matter. These legal experts are contesting the Federal Reserve’s authority to refuse master accounts to banks holding state charters. This contention challenges the established dual banking system, which grants banks the autonomy to opt for either a state or federal charter.

As a researcher examining this issue, I would put it this way: My analysis indicates that the Federal Reserve’s differential treatment towards state-chartered banks in granting master accounts may potentially conflict with the Monetary Control Act. This legislation is designed to ensure equitable access for all banks to the Fed’s services.

According to the Monetary Control Act, the term “shall” implies an obligation for the Federal Reserve to extend its banking services to non-member depository institutions. The defendant further mentioned the Cantero v. Bank of America case in relation to the dual banking system. They argued:

The United States has a two-tiered banking structure, comprised of both federal and state institutions. This setup enables privately held banks to secure their charters, that is, their legal licenses to operate, either from the Federal Government or from individual state governments.

In the submitted document, the digital bank contends that the Federal authorities’ actions are not exempt from judicial scrutiny. The bank proposes utilizing mandamus relief and the Administrative Procedure Act to contest the Federal Reserve’s judgments. Additionally, the paper highlights the enduring history of the dual banking system, which dates back more than 150 years and has consistently proven resilient in facing economic challenges. This is conveyed through the disclosure in the filing.

“There’s no justification for assuming the Federal Reserve’s actions are beyond judicial scrutiny, even if they go against Congressional instructions. The mandamus procedure applies to the Federal Reserve Bank of Chicago at a minimum, and the Administrative Procedure Act offers a remedy against the Board.”

In 2019, Wyoming enacted a law permitting qualified institutions such as Custodia to apply for a Special Purpose Depository Institution (SPDI) charter. I contend that the Federal Reserve’s decision not to issue a master account to an eligible SPDI like Custodia constitutes discrimination.

In April, a digital banking company made known its appeal of a court decision upholding the Federal Reserve’s denial of their application for a master account. As per the judgement, the Kansas City Fed held the authority to turn down the firms’ proposal. The Judge added that the bank failed to present sufficient proof demonstrating pressure from the Federal Reserve’s main Board to reject its application.

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2024-06-27 13:33