📅 October 31 | United States
Custodia Bank's battle against the Federal Reserve has just suffered a major setback. A federal appeals court upheld that the Fed has the right to deny a master account to the entity founded by Caitlin Long, one of the most influential figures in the “regulated crypto banking” movement.
📖 Wyoming-based Custodia Bank had been trying for over three years to obtain a master account—the permit that allows financial institutions to interact directly with the Federal Reserve, without intermediaries.
Its goal was clear: to build a bridge between cryptocurrencies and the traditional banking system, allowing clients to trade stablecoins and hold digital assets under state regulation. But from the outset, the Fed resisted. In 2023, it formally denied Custodia's application, citing “significant risks to financial stability and oversight”.
Caitlin Long sued, arguing that the Federal Reserve was violating the principles of competition and banking neutrality.
However, the Tenth Circuit Court of Appeals upheld the original ruling this week: the Fed has full discretion to reject applications from banks that, in its judgment, do not meet systemic risk and security standards.
The decision doesn't just affect Custodia Bank. It means that other digital banks and crypto custodians—such as Kraken Bank or Anchorage Digital—could face similar barriers if they try to gain direct access to the Fed's payment system.
In the words of an analyst quoted by The Block:
“This is a sign that the Fed won't easily open its doors to the crypto sector. It prefers to maintain a high wall rather than risk its infrastructure being contaminated by digital markets.”
Despite the setback, Caitlin Long responded publicly on X (formerly Twitter):
“We will continue fighting for an inclusive, innovative, and secure financial system. The story doesn't end here.”
The executive emphasized that Custodia Bank will continue operating under its state license in Wyoming, but acknowledged that the ruling severely restricts its national reach and competitiveness.
Topic Opinion:
The Federal Reserve is unwilling to share its infrastructure with projects it perceives as unpredictable, even if they are regulated at the state level. But it also reveals something deeper: a lack of clarity on how the U.S. intends to integrate decentralized finance into the banking framework.
💬 Do you think the Fed should open its doors to crypto banks like Custodia Bank?
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