Special-purpose nonbank Custodia continues push for Fed master account

Custodia Bank is reportedly continuing its effort to procure a master account with the Federal Reserve after the special-purpose depository institution was denied last month.

Background: The Federal Reserve last month denied Custodia Bank’s application to become a member of the Federal Reserve System, and the Federal Reserve Bank of Kansas City denied the institution’s application for a master account. Custodia, which is chartered by the state of Wyoming, does not have federal deposit insurance and proposed to engage in novel and untested crypto activities.

Custodia Complaint: Coindesk reported that Custodia filed an amended legal complaint against the Fed, claiming the denial of its application was unlawful and questioning whether Congress granted the Fed discretion to determine access to Fed master accounts.

Fed, White House Statements: At the time it denied Custodia’s application, the Fed also issued a policy statement clarifying that its regulatory limitations apply to both insured and uninsured depository institutions and said crypto activities are “highly likely to be inconsistent with safe and sound banking practices.” In a separate statement on the same day, the White House called for a broader policy response to digital assets.

ICBA Response: ICBA expressed support for the Fed and White House statements, saying they reflect community bank advocacy. In a national news release, ICBA President and CEO Rebeca Romero Rainey said:

• The Fed’s actions appropriately safeguard the banking system from the risks posed by institutions with novel charters and from the crypto sector, reflecting ICBA concerns laid out in recent comments on accessing Fed master accounts.

• The White House’s statement echoes ICBA’s long-standing calls for policymakers to develop a clear regulatory framework that ensures the traditional banking system remains a safe haven from crypto instability.