- Key insight: Custodia Bank is continuing its legal battle with the Federal Reserve over access to its payments system via a master account.
- Expert quote: "Given the Federal Reserve's unique independence from presidential control, it is particularly important for the court to ensure that the power the Fed claims to possess has in fact been authorized by Congress." — Custodia Bank's Supreme Court Petition.
- Forward look: If the Supreme Court picks up the case, it could expand upon recent decisions related to independent agencies and the power structure of the Federal Reserve System.
A Wyoming-based digital asset bank is attempting to elevate its legal battle with the Federal Reserve to the Supreme Court, in a case that has far-reaching implications for banks and the cryptocurrency sector.
Custodia Bank filed a petition with the high court on Friday asking it to review a 10th Circuit Court of Appeals decision from March in favor of the Fed. In its motion, the bank cited two recent Supreme Court decisions involving the central bank.
The petition references the recently decided
"Given the Federal Reserve's unique independence from presidential control, it is particularly important for the court to ensure that the power the Fed claims to possess has in fact been authorized by Congress," the bank argued.
The petition continues Custodia's five-year legal battle with the Fed over access to its payments system.
Custodia is seeking to have the Supreme Court overturn decisions at both the district and appeals court levels holding that the Federal Reserve Bank of Kansas City was operating within its statutory authority when it denied the bank a master account in January 2023.
Founded in 2020 as Avanti Bank, Custodia was among the first institutions chartered under Wyoming's Special Purpose Depository Institutions regime. It sought to provide banking services to the cryptocurrency industry. It applied for a master account with the Kansas City Fed that same year.
In June 2022, Custodia
Custodia went on to
In its petition, Custodia argues that dictating which banks can and cannot have master accounts amounts to an executive function, one that was never given to the president of the Kansas City Fed — a position chosen by the reserve bank's private regional boards of directors and not by either Congress or the executive branch.
The bank also claims it was denied a master account simply because of its involvement with the cryptocurrency industry.
"This case presents an exceptionally important question: whether regional Federal Reserve Bank presidents possess unbounded, unreviewable discretion to deny disfavored banks access to the Federal Reserve's payment services," Custodia's lawyers wrote. "The Fed's aggregation of such enormous power in its unappointed regional bank presidents flouts statutory text and has stark implications for its power vis-à-vis the President; for the constitutionality of the Fed's appointment structure; and for the continued viability of the States' historical prerogative to charter banks and regulate local banking."
Custodia claims the Kansas City Fed's rejection of master account access has amounted to a "death sentence" for the bank. It cast the current moment as the last chance for the court to curtail the Fed's activity for "the foreseeable future."
"Without the Court's intervention here, the Fed's flouting of the statutory constraints on its authority will continue indefinitely," the petition reads. "The Court should not let the Fed's power grab go unchecked."
