‘Stunning’ Revelation Bolster’s Wyoming-Based Custodia Bank’s Case Against Federal Reserve

A Federal Reserve database of master accounts reveals “stunning” information in Wyoming-based Custodia Bank’s precedent-setting lawsuit against the Fed for denying its master account.

Renée Jean

June 21, 20235 min read

Custodia and Federal Reserve Bank of Kansas City 6 21 23

The Federal Reserve has released its database of master account holders and applicants, and there are a few surprises in the database that have drawn the attention of a certain Wyoming digital bank.  

That bank is Custodia, which has been wrestling with the Federal Reserve over the status of a master account for the small, digital bank, which is a bank utility created for state and federally chartered banks to keep track of transactions.  

Without that, Custodia Bank would have to rely on an intermediate bank to clear its financial transactions. That will both cost more and significantly slow down the process. 

The Federal Reserve Bank denied Custodia’s master account application earlier this year. Custodia, meanwhile, is arguing in its lawsuit that the Federal Reserve doesn’t have legal discretion to deny a state-chartered bank. 

The Wyoming bank recently survived a third motion to dismiss from the Federal Reserve over its handling of Custodia’s master account application. 

Officials with Custodia Bank believe the new information contained in the master account database will bolster the digital bank’s case.   

“The Federal Reserve’s master account list, which the Fed was forced by Congress to make public, includes stunning details that suggest Fed leadership has been operating beyond its legal authority,” Custodia Bank spokesman Nathan Miller told Cowboy State Daily in an email.  

Namely, the list includes 414 uninsured institutions, as well as a number of non-depository institutions who Miller said appear ineligible for a master account to begin with. 

“And yet, they received one,” Miller said. “It’s no wonder the Fed fought tooth and nail to keep this database hidden from the public for years. The Fed’s unlawful denial of Custodia Bank’s application for a master account is all the more glaring in light of today’s revelations.” 

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Blowing Up Twitter 

Caitlin Long, CEO of Custodia, was blowing up Twitter after the Federal Reserve released the list of master accounts. 

“MORE THAN 1,000 current Fed master account holders have no federal deposit insurance,” she tweeted. “And several current Fed master account holders do not appear to have been eligible for one, yet the Fed granted them one anyway.”  

Lack of federal insurance deposits was one of the big reasons the Federal Reserve mentioned in an 86-page document denying Custodia Bank’s master account application. The length of the denial was itself unusual, according to Custodia Bank CEO Caitlin Long. 

“It was 41 times longer than any other denial of such an application,” she told Cowboy State Daily in a recent interview.

“HOLY COW, does this database of Fed master account holders ever raise a lot of questions,” Long tweeted again. “A LOT OF QUESTIONS!!!!! The list of uninsured financial institutions that have Fed master accounts is 21 pages long, and I’ve spotted several that may not even have been eligible for one!!!!!” 

The tweet is accompanied with a frowny-face, angry emoji. 

Among these master accounts some are questioning, is one for Brown Brothers Harriman & Company, according to a tweet from Alabama law professor Julie Hill, a prominent legal expert on digital banks and currency.  

“The Federal Reserve does not publicly explain how any of its account holders qualify,” she added in a later tweet. “BBH is not a clearly eligible Fed. Member bank. Accordingly, all that the public (I!!) can do is guess about how Brown Brothers Harriman & Co. ended up with an account.” 

Toomey Connection 

Public release of the master account list was the product of an amendment introduced by former U.S. Sen. Patrick Toomey, a Republican from Pennsylvania.  He said the legislation was necessary to force transparency from an uncooperative agency. 

Toomey took particular issue with the Federal Reserve’s latest motion to dismiss in the Custodia Bank case, which was recently rejected. In a brief, Toomey said the Federal Reserve’s interpretation that his amendment was meant to grant them new authority is flat-out wrong. 

The James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 Amendment to the Federal Reserve was meant to force transparency around who was getting a master account and who was not, after several state-chartered banks, including Custodia, had difficulty obtaining theirs, Toomey argued in an amicus brief filed in the Custodia Case. 

“Sen. Toomey submits this brief because Defendants’ arguments in this case, reading the Amendment as recognizing or bolstering their discretion to reject master account applications from statutorily eligible depository institutions, misconstrue the Amendment,” Toomey’s brief states. “As its text makes clear — and as the Board of Governors of the Federal Reserve System (the “Board) knows from conversations with the legislative staff during its drafting — the Amendment was exclusively a transparency measure, requiring the Board to disclose the identity of entities that hold, or have submitted pending or rejected applications for, master accounts.” 

Renée Jean can be reached at Renee@CowboyStateDaily.com.

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Renée Jean

Business and Tourism Reporter