Peter Conti-Brown, a professor at the Wharton School and famous financial historian, has opined that a looming victory might be ahead for the Custodia Bank in its legal battle with the Federal Reserve.
Professor Conti-Brown shared this opinion as an interpretation of the recent judicial developments on the issue in a recent post on X. His post contained a screenshot of the Court order cancelling the trial setting, final pretrial conference, and associated filing deadlines.
Custodia Bank is one of the few mainstream banks in the U.S. to adopt a cryptocurrency-friendly stance. In late 2020, the bank submitted an application for a master account to become part of the Federal Reserve System. This move will allow the bank direct access to the Fedwire network, which is crucial for facilitating massive-volume instant transactions. The bank argued that acquiring direct access to the Federal Reserve, instead of passing through intermediary banks, would enable it to minimize costs and boost its cryptocurrency strategy.
However, the Federal Reserve Bank of Kansas City denied the application over concerns regarding Custodia’s proposed “novel and untested digital asset activities”. The federal agency also stated that Custodia’s risk management framework wasn’t sufficient to mitigate the heightened risks related to its proposed digital asset activities, especially money laundering and terrorism financing risks.
In response, Custodia filed a lawsuit against the Federal Reserve, accusing the agency of unlawfully delaying its application. The lawsuit is ongoing, with no final ruling from the court. The recent court order has nullified the initial trial date of April 8, allowing the case to proceed through regular channels. Notably, Conti-Brown is actively involved in researching the legislative history relevant to the lawsuit on behalf of Custodia.
However, not many quarters agree with Conti-Brown’s optimistic interpretation of the court’s statements. Critics argue that the court’s eagerness to decide on the suit’s merits without proceeding to trial could be perceived as biased in favour of the Federal Reserve.
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