The Independent Community Bankers of America (ICBA) applauded a recent court decision affirming the Federal Reserve’s authority to deny Custodia Bank’s application for a master account.
The ruling, made by the United States Court of Appeals for the 10th Circuit, concluded that the Federal Reserve Banks have the discretion to reject master account requests from eligible entities.
“Today’s 2-1 ruling preserves the Federal Reserve’s role in protecting the integrity and stability of the U.S. financial system by clarifying the Federal Reserve Banks have discretion to deny master accounts to entities that they determine pose undue risks to the Fed’s payment systems and services,” ICBA President and CEO Romero Rainey said.
ICBA has long been an advocate for limiting access to the Federal Reserve’s master accounts. In an amicus brief filed in the case, ICBA officials warned that granting direct access to novel financial institutions that are not subject to federal prudential oversight would introduce unnecessary risks and volatility into the banking system.
“Community banks operate under a robust framework of federal oversight, capital standards and deposit insurance—all designed to protect consumers and maintain trust,” Rainey added. “Extending the privileges of master account access to entities that are not subject to the same regulation as community banks would have undermined that stability. Today’s ruling ensures our nation’s payment systems remains safe, sound and resilient.”