Wyoming-based, crypto-friendly Custodia Bank has filed a lawsuit against the US Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City. In a 44-page complaint, it claims to be fed up with a 19-month delay of its application for a master account and alleges that the Fed’s hold up violates a statutory, one year deadline.
A master account enables a bank to have direct access to Federal Reserve payments and services, such as overnight loans. Essentially, approval would allow Custodia to not rely on other banks to hold its fiat.
Custodia Bank, formerly known as Avanti Bank, is requesting a judge to order the Fed to respond to its application within 30 days. If the application is denied, it has stated that it’ll appeal such a decision in court.
The Cheyenne, Wyoming-headquartered crypto bank claims that master account access is indispensable to its business. Moreover, its suit accuses the Board of Governors and the Kansas City branch of an unlawful, “Kafkaesque” delay, as reported by Law360.
Why Custodia Bank is important to the crypto industry
Morgan Stanley veteran Caitlin Long founded Avanti Bank in 2020. Long regularly speaks on Capitol Hill and at crypto conferences. She also works with one of the oldest US crypto exchanges, Kraken, which is also seeking master account access. Through Custodia Bank’s special purpose depository institution (SPDI) charter, Kraken can settle crypto transactions in fiat.
In June 2020, Avanti Financial Group closed a $5 million angel round. Soon after, it earned a banking charter. By October 2020, Custodia filed an application for a master account, which remains pending. As of March 2021, Avanti had raised a $37 million Series A.
Pro-Bitcoin senator Cynthia Lummis is also supportive of Custodia Bank. For its part, other than acknowledging the lack of clarity and consistency in application reviews, the Fed has yet to issue a statement concerning the lawsuit. However, it previously stated that it was still considering whether Wyoming SPDIs qualify as banks — which Lummis stated was “not a serious legal question.”
Should Custodia win this legal conflict, it would become the first crypto bank to gain a master account.