Custodia sues Federal Reserve over delay in main account request

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 to open a main account at the central bank. Custodia claims that the delay caused it to suffer heavy financial losses and prevented it from offering new services to its customers.

Formerly known as Avanti, Custodia launched in 2021 as the first native digital asset bank in the United States. It was founded and is led by Caitlin Long, the former Wall Street veteran who made headlines when she quit a chief executive position at Morgan Stanley to join a blockchain startup.

The lawsuit centers on Custodia’s request for a master account. This account gives banks direct access to the Fed’s payment systems, allowing them to tap directly into the US money supply. This significantly reduces the costs of providing these services to consumers.

“For more than 19 months, defendants refused to comply with Custodia’s request for a main account with the Federal Reserve. Such an account would allow Custodia direct access to the Federal Reserve, rather than going through a intermediary bank,” says the lawsuit, which the bank filed in Wyoming District Court.

Custodia accused the Fed of preventing newcomers like it from bringing new, innovative and competitive services to market “and, not coincidentally, benefits established financial institutions whose interests are represented on the board of Kansas City Fed Administration”.

The Fed has a legal obligation to act within one year of a primary account request, Custodia said. And according to the bank, the Kansas City Fed complied with that deadline until the spring of 2021, when the main Fed got involved. Since then, things have stopped at the expense of the bank.

“Through this lawsuit, Custodia seeks to ensure that its Federal Reserve Main Account Application receives the fair use and due process guaranteed to it by federal law and the U.S. Constitution,” commented Nathan. Miller, Custodia’s spokesperson.

If the lawsuit forces the hand of the Fed and Custodia receives a primary account, it would be the first time a digital asset-native bank has had the party. This account would allow the bank “direct access to the Federal Reserve, significantly reduce costs, and bring new products and options to users of financial services,” the lawsuit says.

Custodia is based in Wyoming, taking advantage of a 2019 law that allows the creation of special purpose depository institutions in the state. Long, the founder, was a major driving force in the state becoming Bitcoin-friendly and passing more than a dozen laws, including the DAO Act, which made Wyoming a Bitcoin hub.

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