Custodia The Crypto Bank Founded by Caitlin Long Sues The Fed For long Delays

The suit is centered on the Fed’s 19-month delay reviewing the application of the crypto bank. This process typically takes about a week.

Custodia, a crypto bank established by Caitlin Long (ex-Managing Director Morgan Stanley), sued the Federal Reserve today for what it claims was a “patently illegal delay” in reviewing its application for a master bank account.

Custodia (formerly Avanti) is one of the select few businesses that have been allowed by a Wyoming statute to be Special Purpose Depository Institutions, which are capable of performing both traditional and crypto transactions.

Crypto-friendly Wyoming’s authority is limited. A bank must have a Federal Reserve “master account” to be able to exercise such power.

Federally-chartered banks all have a master account that allows direct payments to the Fed and access to it. Custodia applied for a master bank account at the Federal Reserve Bank of Kansas City 19 months ago.

According to The lawsuit they have not heard back.

The Federal Reserve Board of Governors was sued along with the Federal Reserve Bank of Kansas City. They claim that the delay caused the violation of a one year statute deadline to approve such applications. The Fed’s master account application paperwork states that a typical turnaround time is five to seven days.

Custodia applied to their master account shortly after they received their Wyoming bank charter, October 2020. According to the lawsuit, Custodia was informed by a Kansas City Fed representative in the early 2021 that their application was complete and contained “no surprises.”

Custodia was not able to make a decision for 2021.

Jerome Powell , Chairman of the Federal Reserve, testified at a Senate hearing in Jan that Custodia’s master accounts application was delayed by Kraken, a San Francisco-based crypto exchange. This was due to the “hugely priorential” nature of giving crypto companies traditional banking power.

Senator Cynthia Lummis (Republican from Wyoming) claimed that such a tactic amounts to “deny with delay” and was intended to “starve the applicants until their deaths.”

Custodia’s request has not been denied, In January, Powell testified that there were “good reasons” to grant Custodia and Kraken master accounts. According to the lawsuit, a representative from the Kansas City Fed confirmed to Custodia that the company was legally eligible for a master accounts as recently as March 22.

Custodia claims that the Fed’s inaction has caused the company to suffer a great deal. Today, Custodia filed a lawsuit claiming that it forced the company to launch with a correspondent banking institution that has its own master account. According to Custodia’s lawyers, such an arrangement “eliminates much the competitive advantage that Custodia would receive from using the Wyoming charter.”

The Kansas City Fed didn’t immediately respond to a request to comment on the story.

If Custodia’s master account application were approved, it would be a significant milestone in the integration crypto into the American economic system.

Traditional banks would not be able offer the same services to crypto businesses. The bank could also facilitate simultaneous settlements of digital asset and dollar trades.

Today’s suit asks the U.S. District Court for the District of Wyoming for an intervention and to compel the Fed’s decision on Custodia’s application within the next 30 days.

The wider crypto community was not unaware of the implications of the suit and the Fed’s impending decision. Charles Hoskinson was the co-founder and tweeter of the Cardano Blockchain.