Custodia, the crypto bank founded by former Morgan Stanley chief executive Caitlin Long, today sued the Federal Reserve over what it claims was a “patently unlawful delay” in reviewing the main account application. form the bank.
Custodia, formerly known as Avanti, is one of a number of companies permit under a Wyoming law become Special Purpose Depository Institutions (SPDIs), capable of performing both crypto transactions and traditional banking services.
However, Wyoming’s authority, compatible with cryptocurrencies, only extends so far: for a bank to wield such power, it needs a “main account” at the Federal Reserve.
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All federally chartered banks have a main account, which allows direct payments with and access to the Fed. Custodia applied for a primary account at the Federal Reserve Bank of Kansas City 19 months ago.
According the trialthey still haven’t heard from them.
The lawsuit, filed against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, claims the delay violated a one-year statutory deadline for approving such requests. In fact, the Fed’s application documents for a primary account mention a typical turnaround time of five to seven business days.
Custodia applied for his main account right after he received his Wyoming bank charter in October 2020. According to the lawsuit, a Kansas City Fed representative then informed Custodia in early 2021 that the application was complete and had “no hurdles.” “.
And yet, for Custodia, no decision has been made for the whole of 2021.
Federal Reserve Chairman Jerome Powell testified at a Senate hearing in January that the abnormal delay in processing Custodia’s main account application – as well as that of Kraken, the San Francisco-based crypto exchange – was due to the “extremely precedent” nature of granting companies crypto from traditional banking powers.
At that same hearing, Senator Cynthia Lummis (R-WY) argued that such a tactic amounted to “delay denial” and was intended to “starve[e] the claimants until their death.”
Notably, Custodia’s request was also not rejected. Powell testified in January that there were “good arguments” for giving Custodia or Kraken a lead account. And as recently as March 22, according to the lawsuit, a Kansas City Fed representative reconfirmed to Custodia that the company was “legally eligible for a primary account.”
Childcare costs fueled by delays
Custodia’s lawsuit today alleges the Fed’s inaction cost the company dearly, forcing it to go with a correspondent bank that has its own main account. Such an arrangement, according to Custodia’s attorneys, “eliminates much of the competitive advantage that Custodia would enjoy using the charter that Wyoming granted it.”
The Kansas City Fed did not immediately respond to a request for comment on this story.
If Custodia’s application for a master account were to be approved, it would mark a major milestone in the integration of crypto into the US economy.
Crypto firms would be able to provide a suite of services offered by traditional banks to traditional businesses. The bank would also be able to provide simultaneous settlement of transactions between digital assets and the dollar.
Today’s lawsuit asks the U.S. District Court for the District of Wyoming to intervene and compel the Fed to make a decision on Custodia’s request within the next thirty days.
The implications of the lawsuit and the impending Fed decision have not been lost on the broader crypto community. Like Charles Hoskinson, co-founder of the gimbal blockchain, tweeted this afternoon:
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