The state of Wyoming has asked to join Custodia Bank's lawsuit against the Federal Reserve over access to the central bank's payments system.
On Monday, the state's attorney general, Bridget Hill, filed a motion in U.S. District Court in Wyoming to intervene in
In the filing, Hill makes the case that the Fed's skepticism of the SPDI regime undermines the dual banking system, in which equal treatment is supposed to be given to state-chartered and federally chartered banks. She cites the Fed's allowance of the Bank of New York Mellon to open a crypto-custody business last year as evidence of a double standard.
"[The Fed has] also expressed skepticism over the aptitude of 'new' state-chartered banks while allowing 'old' state-chartered banks like BNY Mellon to engage in substantially the same digital-asset custody activity Wyoming SPDIs intend to engage in," the motion notes. "A disregard of Wyoming's right to charter depository institutions in the two-tier banking system appears, at least in part, to be the motivation for this disparate treatment and disregard of Wyoming-chartered banks."
Custodia first filed suit against the Fed last June. The Cheyenne, Wyoming, digital-asset bank originally claimed the Fed Board of Governors in Washington and the Federal Reserve Bank of Kansas City were subjecting its application for a master account to an undue delay. Master accounts, which are managed by regional reserve banks, provide access to the Fed's various financial services, including payment settlement systems such as Fedwire and the automated clearing house, or ACH.
In January, the Fed rejected Custodia's bids to become a
Since its rejection, Custodia has
In its filing this week, Wyoming notes that it takes no stance on whether Custodia should have been granted a master account at the Kansas City Fed. However, it argues that in its decision, the Fed has "arbitrarily" drawn lines between the qualifications of state-chartered and federally-chartered banks, thus violating the intent of the dual banking system. Because of this, the state notes that it shares a "common question of law and fact" with Custodia.
Specifically, Hill takes issue with the assessment that the bank's regulatory oversight is deficient compared with federal regulators, such as the Fed and Federal Deposit Insurance Corp. She notes that under the SPDI law, banks are required to meet capital requirements and capital ratios imposed by the Fed and FDIC.
Her motion adds that the Fed using a lack of federal oversight to reject Custodia creates a paradox that could prohibit any new state-chartered bank from obtaining a master account.
"Wyoming SPDI Banks are subject to a range of state-level regulations as outlined under Wyoming statutes, and have attempted to obtain federal regulation — including, in Plaintiff Custodia's case, by applying for membership in the Federal Reserve — but to no avail," the motion argues. "This has created a Kafkaesque situation where a SPDI Bank is denied a master account because it is not federally regulated, even while it is also denied federal regulation."
Wyoming's SPDI is the first state charter in the nation specifically crafted for crypto banking. The charter requires banks to keep at least 100% liquidity on hand for all crypto deposits and prohibits them from lending.
Custodia founder and CEO Caitlin Long played an active role in steering the state's digital-asset policies by participating in government-sponsored task forces on blockchain dating back to 2017.
If its motion for intervention is granted, Wyoming will have an equal stake in Custodia's litigation.
This is not the first time Wyoming has come to Custodia's aid. Last September, Hill joined other state officials and several members of Congress in
Hill did not respond to a request for comment on Tuesday.
A Custodia spokesperson said the bank did not request the state's assistance, and it did not review Hill's motion before it was submitted to the court. But, in a statement issued Tuesday, the company praised the motion.
"Custodia Bank supports Wyoming's intervention to ensure the principles of federalism and to protect the fundamental right of states to charter banks, which is almost as old as the United States itself," Custodia spokesperson Nathan Miller said in a written statement. "A federal veto over state bank-chartering authority has never existed, and nor does it exist today."
The Fed declined to comment on the filing.
