A Wyoming-based digital asset bank has sued the Federal Reserve Bank of Kansas City and the Federal Reserve Board of Governors over a delay in its application for a central bank master account. Custodia claims that the delay has seen it suffer great financial losses and kept it from offering new services to its customers.
Formerly known as Avanti, Custodia launched in 2021 as the first digital asset-native bank in the United States. It was founded and is headed by Caitlin Long, the former Wall Street veteran who made headlines when she ditched a managing director’s position at Morgan Stanley to join a blockchain startup.
The lawsuit is centered on Custodia’s application for a master account. This account gives banks direct access to the Fed’s payment systems, enabling them to tap directly into the American money supply. This drastically reduces the costs of offering these services to consumers.
“For more than 19 months, Defendants have refused to act upon Custodia’s application for a master account with the Federal Reserve. Such an account would allow Custodia to directly access the Federal Reserve, rather than going through an intermediary bank,” the lawsuit, which the bank filed at the District Court of Wyoming, states.
Custodia accused the Fed of preventing newcomers such as itself from bringing in new innovative and competitive services in the marketplace “and, not coincidentally, benefits the established financial institutions whose interests are represented on the Board of Directors of the Kansas City Fed.”
The Fed has the legal obligation to act within a year of a master account application, Custodia says. And according to the bank, the Kansas City Fed was moving along in line with this deadline until the spring of 2021, when the main Fed got involved. Since then, things have come to a halt at the bank’s expense.
“Through this lawsuit, Custodia seeks to ensure that its Federal Reserve master account application receives the fair dealing and due process guaranteed to it by both federal statute and the U.S. Constitution,” Nathan Miller, the Custodia spokesperson commented.
If the lawsuit forces the Fed’s hand and Custodia receives a master account, it would be the first time a digital asset-native bank achieves this fete. This account would allow the bank to “access directly the Federal Reserve, sharply reduce its costs, and bring new products and options to users of financial services,” the lawsuit states.
Custodia is based in Wyoming, taking advantage of a 2019 statute that allows for special purpose depository institutions in the state. Long, the founder, has been a major driving force behind the state becoming Bitcoin-friendly and passing over a dozen laws, including the DAO law, that has made Wyoming a Bitcoin hub.
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