US court rules against blockchain bank’s plea for declaratory judgement

Wyoming’s first SPDIs: Custodia Bank’s search for a Federal Reserve master account has faced a setback as the United States District Court for the District of Wyoming ruled against the bank’s plea for a declaratory judgment. Despite the ruling, Custodia remains resolute, stating that it is exploring all available options, including the possibility of an appeal, according to media reports. 

The court’s decision, issued by Judge Scott Skavdahl on March 29, dismissed Custodia’s request for a Federal Reserve master account, which is crucial for facilitating access to the Federal Reserve’s payment systems, often referred to as “a bank account for banks.”

Custodia argued that without this master account, it would be at a disadvantage compared to other banking institutions, particularly in offering custodial services for crypto-assets. The bank highlighted the role of having equal footing in the financial landscape, rather than being reliant on intermediary banks.

However, Judge Skavdahl ruled that Custodia is not entitled to compel the Federal Reserve Bank of Kansas City (FRBKC) to issue its master account, affirming FRBKC’s decision in the matter.

Custodia’s journey towards obtaining a Federal Reserve master account began in October 2020 when it submitted its application. The rejection of this application by the Federal Reserve in January 2023, citing concerns about Custodia’s involvement in the crypto space, marked a strong setback for the bank.

As one of Wyoming’s first Special Purpose Depository Institutions (SPDIs), Custodia, also known as a “blockchain bank,” was established to assist businesses dealing with crypto assets. However, the road to full integration into the traditional banking system continues to be challenging for Custodia, as it navigates regulatory hurdles and legal proceedings in its quest for equal standing in the financial sector.