Bitcoin bank Custodia is suing the Federal Reserve, claiming the central bank has “unlawfully” delayed its application for a master account.
Specifically, the bank is suing the Federal Reserve Bank of Kansas City and the Federal Reserve Board of Governors. After submitting its business plans in May 2020, Custodia says the Kansas City Fed confirmed that its master account application was completed in October 2020. However, once the main Federal Reserve became involved, the process stalled in Spring 2021.
The suit claims that the Fed has a legal obligation to act within a year, but instead has delayed for over 19 months. According to the central bank’s own paperwork, it ordinarily takes a mere five to seven days to act on a master account application. The suit would compel the Fed to act on the application, with the ideal resolution of approval. This would make the Bitcoin bank the first to receive such a qualification.
“Through this lawsuit, Custodia seeks to ensure that its Federal Reserve master account application receives the fair dealing and due process guaranteed to it by both federal statute and the U.S. Constitution,” said Custodia Bank’s spokesperson Nathan Miller. “Custodia has satisfied every rule applicable to it, and has gone beyond by applying to become a Fed member bank.”
Master account necessity
Founded by Morgan Stanley veteran Caitlin Long in 2020, Custodia was chartered in Wyoming under a crypto-friendly statute passed in 2019, which Long herself had helped compose.
The business seeks to provide accounts for crypto businesses by assisting with payroll and taxes. Unlike other banks, which primarily generate revenue by offering loans, Custodia intends to do so by charging fees for its services.
However, to do so, the bank would need a master account with the Fed. Charging that a master account is “vital” to its core mission, it would allow them to “sharply reduce its costs, and bring new products and options to users of financial services.”
“This delay in processing Custodia’s master account application is resulting in substantial, ongoing injury to Custodia,” the suit claims. “The immediate injury is that the delay has forced Custodia to defer its solo entry into the financial services market.”
If approved, a pro-cryptocurrency bill recently revealed would prohibit Federal banking agencies from delaying applications under existing law and require them to decide on all applications within a year.
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