A federal judge largely upheld the Federal Reserve’s denial of special-purpose depository institution Custodia Bank’s application for a Fed master account.

Background: Custodia, which focuses on crypto services and other novel activities and is not FDIC-insured, sued the Fed for denying its application to become a Fed member and to have a master account with the Kansas City Fed. Custodia has said it has officially launched as Custodia Bank Inc. in nine states to serve U.S.-based business customers.

Judge’s Decision: In the ruling, Wyoming District Judge Scott Skavdahl:

  • Agreed with the Fed’s claim that it is authorized to grant or deny master account requests.

  • Denied Custodia’s claim that the agency’s denial was arbitrary and capricious and therefore in violation of the Administrative Procedure Act.

  • Found that the Fed did not owe Custodia any non-discretionary duty to issue a master account upon request.

Custodia Response: Custodia told reporters it is reviewing the decision and is weighing its next steps.

ICBA View: ICBA last year commended the Fed’s response to the Custodia application in a national news release, saying the agency’s actions appropriately safeguard the banking system from the risks posed by institutions with novel charters and the crypto sector.