Custodia Bank’s challenge of the Federal Reserve Bank of Kansas City’s decision to deny the crypto-friendly bank access to the Fed banking services can continue, a U.S. district court ruled Thursday, rejecting a Fed motion to dismiss the case. Retired U.S. Senator from Pennsylvania, Patrick Toomey, tweeted about the decision on Friday afternoon, saying Custodia Bank will get its day in court.
The U.S. District Court of Wyoming declined to grant Custodia’s request that the Fed be compelled to grant it a so-called master account and membership with the Fed. Instead, Custodia must continue its claims via normal channels. The court said that it was only rejecting the request because there was another avenue Custodia could pursue.
In October 2020, Custodia applied to the Kansas City Fed for a master account, which would allow the bank to offer the same services as institutions with such accounts. Eighteen months later, in January 2022, Custodia was rejected in every single category the Fed assesses, partly because of its crypto friendliness and part because it was a state-chartered bank, not a nationally chartered one. The central bank claimed Custodia’s lack of federal deposit insurance and Custodia’s dependence on a vibrant crypto market made it a danger to itself and its customers.
The district court said that if the Kansas City Fed had been alone in denying Custodia its master license, Custodia’s claim would fail. However, the court said Custodia’s claim that the Fed Board of Governors had weighed in on the decision was plausible.