The bank, a state-chartered Special Purpose Depository Institution (SPDI) created to facilitate cryptocurrency banking, applied for a Federal Reserve “master account” in 2020. This account provides various services such as wire transfers, automated clearinghouse services, securities safekeeping, and Federal Reserve float services, while eliminating the need for an intermediary correspondent bank. In 2021, the bank applied to be a member bank. However, in 2023, the Federal Reserve Board of Governors (the Board) denied the membership application, and the Federal Reserve Bank of Kansas City (FRBKC) denied the master account application. As a result, the bank filed suit alleging two claims. First, it asserted that the Federal Reserve Board of Governors (the Board) violated the Administrative Procedure Act (APA) and sought to compel the Board to issue the master account. Second, it requested a writ of mandamus against the FRBKC, compelling it to grant the master account. Both parties moved for judgment as a matter of law. The court considered whether denying the bank’s requests constituted a final agency action and whether the agency was legally required to grant the bank an account.
In Custodia Bank, Inc. v. Fed. Rsrv. Bd. of Governors, 728 F. Supp. 3d 1227 (D. Wyo. 2024), the court ruled in favor of the Board and the FRBKC. The bank argued that an email from the Board to the FRBKC, stating it had reviewed and had "no concerns" with the FRBKC's intent to deny the application, constituted a final agency action. The court referred to this email as the "no concerns email" and gave two reasons why it did not constitute a final agency action. First, the court concluded that the email was not an agency action "warranting judicial review" because it does not meet the definition under 5 U.S.C. § 551(13). Second, it determined that the email constituted only the Board’s "implementation decision," which carried out "a broader agency plan." Further, although an outcome may be the result of a decision-making process, it does not necessarily “represent the agency’s last word on the matter”; thus, it is not a reviewable final action. Although some implementation decisions may be reviewable if they have independent legal force, the bank did not raise this argument. Regarding the bank’s second claim, the court analyzed statutory construction laws and assessed Congress’ intent behind 12 U.S.C § 248. It concluded that § 248a and Subchapter II "persuasively suggest" that the Federal Reserve Banks are not required to provide master accounts to all eligible depository institutions. Under the statute's plain language, the court explained that the agency possesses discretion regarding granting the accounts. Additionally, the court highlighted that if it were to grant the bank’s interpretation of the statute, only state chartering laws would insulate the U.S. financial system, and it clearly lacks the resources to do so. Therefore, the court held that the bank’s interpretation was not consistent with Congress’ intent. Therefore, the court denied the bank’s writ of mandamus to compel the granting of the master account, and it granted FRBKC’s summary judgment motion against the bank.
By Callighan Ard: [email protected]
Edited By Ashley Boyce: [email protected]
Edited By Hayden Mariott: [email protected]