Regulation
Custodia Bank Files Appeal Stating Fed’s Law Violation & Dual Banking System
Custodia Bank has filed an opening brief in the 10th Circuit Court of Appeals. They are challenging a Wyoming judge’s decision that granted the Federal ReserveFederal Reserve the power to deny it a master account. Moreover, the brief urges the appeals court to instruct the Wyoming district court to revoke its denial and grant Custodia a master account.
Custodia Bank Files Opening Brief In 10th Circuit
Custodia Bank CEO Caitlin Long has hired two veteran Supreme Court attorneys for the lawsuit against Fed. Their arguments are focused on several key points, including violation of the dual banking system. Custodia Bank’s lawyers argue that the Fed’s authority to deny master accounts to state-chartered banks undermines the dual banking system.
This system allows banks to choose between a state charter or a federal charter. Hence, they referenced the case Cantero v. Bank of America. The 10th circuit brief stated, “The United States maintains a dual system of banking, made up of parallel federal and state banking systems.”
In addition, Custodia’s lawyers also argue that the Fed’s power to discriminate against state-chartered banks may violate the Monetary Control Act (MCA). The MCA ensures fair access for state-chartered banks to the Fed’s services. In addition, they pointed to Congress’s mention of the word “shall” in the MCA, which states that “all Federal Reserve bank services…shall be available to non-member depository institutions.”
Furthermore, Custodia’s brief asserts that there is no basis for the Fed’s actions to be immune from judicial review. They argue that mandamus relief is available against the Federal Reserve Bank of Kansas City (FRBKC). Moreover, they state that the Administrative Procedure Act provides a remedy against the Board when it defies a congressional command.
In addition, the brief explains the historical significance of the dual banking system. It highlights that this system has survived for over 150 years and continues to be durable and responsive to the economy. Hence, the dual banking system respects distinct and equal state and federal roles.
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Other Arguments Against Fed
Wyoming enacted a statute in 2019 to allow qualified applicants to obtain a Special Purpose Depository Institution (SPDI) charter, Custodia’s brief highlights. SPDIs take deposits, facilitate U.S. dollar payments, and provide digital asset custody services.
Moreover, they do not lend and must comply with all applicable federal laws. This is central to the Custodia Bank case because the Fed’s refusal to grant a master account to an eligible SPDI like Custodia is discriminatory.
Furthermore, the brief explains that the MCA was enacted to address payment access and unequal treatment of member and non-member banks. The MCA required the Fed to provide all depository institutions direct access to its payment system services on the same terms as member banks.
In addition, Custodia’s lawyers argue that Section 248a(c)(2) of the MCA sets forth a fee schedule for Fed services and requires these services to be available to nonmember depository institutions. The brief states, “All Federal Reserve bank services covered by the fee schedule shall be available to nonmember depository institutions.”
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