Custodia Bank Enlist Two Solicitors To Fight Federal Reserve

Custodia Bank, a Wyoming-based institution, has enlisted legal heavyweights Ian Gershengorn, former solicitor general under President Barack Obama, and Michelle Kallen, ex-Virginia solicitor, to lead its legal battle against the Federal Reserve’s denial of its stablecoin project. According to the announcement, the bank intends to challenge the ruling strongly as it considers it a crucial obstacle to its operations and growth in the digital asset sector.

Meanwhile, Caitlin Long, CEO of Custodia, affirmed Gershengorn and Kallen’s extensive experience in constitutional and administrative law, and in federal regulation of digital assets, positions them as a formidable advocate for Custodia Bank’s case. However, the outcome of this legal saga will have implications not only for Custodia Bank but also for the broader landscape of digital asset banking in the United States.

Court Denies Custodia the Access to Fed Master Account

Recall that in March, the Custodia Bank’s quest for a Federal Reserve master account faced a setback as the United States District Court ruled against granting the digital asset bank’s plea for a declaratory judgment.

Notably, the court’s decision, handed down by Judge Scott Skavdahl, not only denied Cistodia’s bid for a master account but also dismissed its plea for a writ of mandamus compelling the Federal Reserve Bank of Kansas City (FRBKC) to issue the account. The bank argued that without a master account, it would be at a disadvantage compared to other banking institutions, particularly in providing custodial services for crypto-assets.

However, the judge’s ruling affirmed that the bank is not entitled to have the Fed Reserve’s decision unturned, as it functioned like an uninsured bank and is relegated to dependency on an intermediary bank.

Significant Blow to Custodia Bank’s Aspirations

The denial by the Fed dealt a significant blow to Custodia’s aspirations. The Fed cited Custodia’s involvement in the crypto space as “inconsistent with the required factors under the law” as grounds for rejection.

Custodia Bank’s plight reflects broader challenges institutions face navigating the intersection of traditional banking and the burgeoning cryptocurrency industry. As one of Wyoming’s pioneering Special Purpose Depository Institutions (SPDIs), also known as “blockchain banks,” Custodia was established to cater to businesses engaging in crypto-related activities, offering an alternative to traditional banking services.

Despite these setbacks, Custodia remains undeterred with a spokesperson affirming the bank’s commitment to exploring all possible avenues, including the potential for appeal.