[00:00:00] Speaker 04:
is 24-8024, Custodia Bank versus Federal Reserve.

[00:00:05] Speaker 04:
Mr. Gershengorn.

[00:00:10] Speaker 03:
Good morning, Your Honors, and may it please the Court, Ian Gershengorn on behalf of Custodia Bank.

[00:00:15] Speaker 03:
I'd like to reserve three minutes for rebuttal.

[00:00:18] Speaker 03:
In the Monetary Control Act of 1980, Congress provided that covered services, including services like master accounts, quote, shall be available to non-member depository institutions.

[00:00:30] Speaker 03:
For more than 35 years, in both statements and actions, the Fed and the Federal Reserve Banks implemented this unambiguous congressional command, never denying a single master account to an eligible institution.

[00:00:43] Speaker 01:
Now the Fed has initiated... By during that time, did they ever say, we're not denying it because we don't have discretion, it's automatic?

[00:00:49] Speaker 01:
Or did they say, exercising our discretion, we're not denying it?

[00:00:55] Speaker 03:
They didn't say the latter.

[00:00:57] Speaker 01:
But did they say the former?

[00:00:59] Speaker 03:
Your Honor, I think what's fair from the record to say over and over is that A, they denied everyone, B, repeated statements from both the Federal Reserve Banks and from the Fed said that this was open to everyone, and third, they were making their decisions off a one-page form

[00:01:18] Speaker 03:
that form asked for name, address, and contact information.

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So I think the record is very clear that for 35 years, the Fed acted as if and said that it had no discretion.

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Now, I think what's happening here is there's essentially a rearguard action by the Fed to seize the power that Congress never gave it, asserting the authority to pick winners and losers as part of as new banks enter the market and essentially overruling state regulatory decisions.

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But as Judge Backrack recognized,

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that newfound power cannot be squared with the plain text.

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Judge Becker-Acton has the benefit of the amendment, the Toomey Amendment.

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How should we be thinking about that?

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So Your Honor, I think the Toomey Amendment doesn't change anything.

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So first, the Toomey Amendment is recognizing that in the real world,

[00:02:05] Speaker 03:
the Fed was denying, was rejecting applications.

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So when Congress asked for information on bank robberies, arsons, and murders, it's of course not saying that those things are lawful.

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It's asking for information on them so that it can legislate and so that it can have hearings.

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In fact, I think it would be quite an unfortunate policy consequence if this court were to decide that by gathering information that Congress therefore blessed perhaps an unlawful

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interpretation by an agency.

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And indeed, I think in this case, it would be particularly unfortunate to do so because of the historical context of the Toomey Amendment.

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Remember, what was happening there was that the Fed had revoked the master account of reserve trust, and the Senate Banking Committee asked for information on the rejection, and the Fed said, pound sand.

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And so what Congress then said was, no,

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We're not accepting that.

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We want information.

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And indeed, at the very time Congress was passing a statute requiring information on rejections, members of the Senate were actually filing an amicus brief in our case saying what the Fed and the Federal Reserve Bank was doing was unlawful.

[00:03:18] Speaker 00:
So does reject mean rejection at the threshold for ineligibility?

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Is that all it means?

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No, Your Honor.

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I think what reject means is

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Tell us what you are actually doing in the real world.

[00:03:29] Speaker 03:
In the real world, remember, as this court is well aware, the Fed and the Federal Reserve Banks had rejected the application of Fourth Corner.

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That's what gave rise, of course, to Judge Bacharach's opinion in this court, opinion in the case arising in this court.

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It had revoked the master account from Reserve Trust.

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So rejections were happening in the real world.

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It's therefore no surprise that the Toomey Amendment said, we want information on,

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basically for grants, pending, and rejections.

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Not because they were lawful, but because they were actually happening.

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Congress has to be able to gather information about things that agencies are doing without blessing it.

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If Congress were to say to the executive branch, give me all examples that you have defied congressional subpoenas, nobody would think that Congress was blessing

[00:04:18] Speaker 03:
the executive branch position of not responding fully to subpoenas.

[00:04:23] Speaker 04:
One of the stronger arguments I thought for the defendants was that section 342 was directed to banks and 248 was directed to the board and since you're a bank and it's more logical to find the source of

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authority here in a provision directed at the bank.

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How do you square respond to that argument?

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So the way I respond to the argument is I'd like to give a specific response and then kind of a structural response.

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So the specific response is that the command in section 248 is not directed to the board.

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It says all Federal Reserve Bank services shall be available to non-membered depository institutions.

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It is correct, of course, and this is the structural point, that 342 generally gives the Federal Reserve banks authority to accept deposits.

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But I think that is the background legal authorization that gives the Federal Reserve banks the ability to take deposits.

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It's not the be all and end all.

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If Congress passed a statute that said, for example, no master account shall be available

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to a bank owned by a foreign adversary.

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Nobody would think that 342 overrode that and gave the Fed

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or the Federal Reserve Bank's discretion, it's a general provision making it legal for the Federal Reserve Banks to take deposits.

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But of course, that general provision is subject to subsequent amendments and subsequent clarification, which is exactly what Congress did.

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And the way you know that, Your Honor, is that this was the deal from the Monetary Control Act.

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What happened at the time of the Monetary Control Act is that banks were leaving in droves because the reserve requirements

[00:06:09] Speaker 03:
were different for banks in the federal system.

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So what Congress did was it put uniform reserve requirements, but in return, it guaranteed all banks, including the non-member banks, access to certain covered services, the bare minimum services that Congress thought was necessary

[00:06:28] Speaker 03:
in order to compete in the banking level.

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And so the whole system makes good sense, whereas the Federal Reserve undoes that bargain and is quite at odds with 35 years of statement after statement that these services will be available.

[00:06:44] Speaker 04:
Under your interpretation then, the bank has a mandatory non-discretionary obligation to grant a master account without evaluating risk factors.

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the potential threat harm, whatever, to the Federal Reserve system.

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It seems like the bank ought to be able to evaluate some of those factors before bringing a new actor into the system.

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So, Your Honor, I'm glad you raised that because I really do think their argument isn't a statutory construction argument.

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It is a

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what I would call a scare tactic about risk.

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And so let me say a few things about risk, because I really think that gets to the heart of the case.

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First, for 35 years, the Fed managed risk to the system without ever denying a master account, and after repeated statement after repeated statement that the service was available to all.

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Second, 248C,

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itself addresses risk.

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Congress was not oblivious to this.

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What Congress said was, all services shall be available except that non-member banks shall be subject to other terms, including a requirement of balances sufficient for clearing purposes.

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So Congress addressed risk in the statute and didn't say deny master account.

[00:08:02] Speaker 03:
Master accounts, I think it's really important for the court to sort of understand what master accounts are and aren't.

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Master accounts are like an entrance fee.

[00:08:09] Speaker 03:
They are not the keys to the kingdom, right?

[00:08:11] Speaker 03:
They are what allow the minimum basic services that allow banks to compete.

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And of course the Fed has plenty of tools to deal with master accounts.

[00:08:21] Speaker 04:
Could the bank grant the master account and then refuse to accept deposits under 342?

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I don't think so the under 342 it has discretion to deny to accept deposits except where that would undo Congress's judgment that you need to have the services available.

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that are listed in 248B.

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So Congress made a substantive judgment those services would be available.

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The Fed and the Federal Reserve Banks cannot, by subterfuge, eliminate access to those services.

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But they can do, as part of the risk management, whatever they can do to member banks.

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And so I'd like to just continue the risk point, if I could, because I think it's really important.

[00:09:05] Speaker 03:
The master account is like your, they have all the tools that are available for your debit account, right?

[00:09:09] Speaker 03:
They can prevent overdrafts, they can require minimum balances, they can require collateralization.

[00:09:15] Speaker 03:
So the risk caused by the master account is fully protectable and more broadly, right?

[00:09:23] Speaker 03:
the broader risks to the system are covered by tools that came out in discovery that are in the record, and it's no surprise, right?

[00:09:31] Speaker 03:
The Fed every day and for 35 years has been protecting the system from systemic risk without denying a single master account.

[00:09:38] Speaker 03:
That's because they have a plethora of tools to do that, all of which are in the record.

[00:09:43] Speaker 03:
And of course, states are available, and states are the key regulators in

[00:09:48] Speaker 03:
the dual banking system.

[00:09:50] Speaker 01:
So I'm curious, if they've never denied a master account, why didn't you add account and claim of abuse of discretion here that I was intrigued that you went for the whole enchilada and you didn't ever ask for that abuse of discretion?

[00:10:06] Speaker 03:
So, Your Honor, we didn't.

[00:10:08] Speaker 03:
And that was the litigation judgment.

[00:10:10] Speaker 03:
We think the statute is crystal clear.

[00:10:12] Speaker 03:
I will say, as Your Honor is well aware from the Bank of San Juan litigation,

[00:10:17] Speaker 03:
The position from the Fed and the Federal Reserve Bank is that discretion is completely unreviewable, a position that Judge Codel accepted in the Southern District of New York.

[00:10:25] Speaker 03:
So, like, I really do think we find ourselves, you know, kind of in a, between a rock and a hard place on this.

[00:10:31] Speaker 03:
But we did, I think, and Judge Backrack's opinion, I think, kind of lighted the way for us on this.

[00:10:36] Speaker 01:
But that opinion was not an opinion for the court, as I understand it.

[00:10:41] Speaker 03:
No, no, no, Your Honor.

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I'm not saying this court is bound by it.

[00:10:43] Speaker 03:
He was the only judge who reached the merits.

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But he's the only Court of Appeals judge ever to have reached the merits.

[00:10:48] Speaker 03:
And he went our way on this.

[00:10:50] Speaker 03:
I mean, I think, respectfully, what is going on, I think, is actually not risk, and it's not statutory construction.

[00:10:57] Speaker 03:
It's a frustration by the Fed and the Federal Reserve Banks about Congress's refusal, in some ways.

[00:11:05] Speaker 03:
the absence of congressional regulation of crypto.

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I mean, I think you see this in Judge Bibas' opinion in the Third Circuit in Coinbase last week.

[00:11:13] Speaker 03:
The federal regulators are upset that Congress hasn't addressed crypto.

[00:11:17] Speaker 04:
Although they've denied master accounts and the Bank of San Juan is not a crypto.

[00:11:24] Speaker 03:
No, Your Honor.

[00:11:25] Speaker 04:
Pay services in Idaho is not a... No, Your Honor, they're not.

[00:11:29] Speaker 03:
But I think it's all of a piece.

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If you look at Fourth Corner and this case, I think what there is is a sort of

[00:11:35] Speaker 03:
with frustration in the crypto community that the federal regulators haven't addressed that.

[00:11:42] Speaker 03:
But that is not for the Fed.

[00:11:45] Speaker 03:
That is not for the Federal Reserve.

[00:11:47] Speaker 00:
Is there a difference between thinking about risk and thinking about something that is truly illegal conduct, you know, money laundering and the like?

[00:11:56] Speaker 00:
I'm trying to discern a limiting principle, and your argument does not lend itself to one.

[00:12:01] Speaker 00:
It's an absolute entitlement argument, and I'm trying to see if there's any daylight

[00:12:05] Speaker 00:
between thinking about risk here and your proposal or your argument that there's mitigation measures for risk that don't have to do with denying master accounts at the outset.

[00:12:17] Speaker 00:
And any reason a state charter bank could be denied a master account if it's engaging in illegal conduct.

[00:12:22] Speaker 03:
So, of course, Judge Bacharach's opinion addresses that and says, A, we are subject to all the anti-money laundering statutes.

[00:12:31] Speaker 03:
And of course, the Fed could revoke the account for us, as they do for the member banks.

[00:12:36] Speaker 03:
TD Bank just settled a $3 billion case about the anti-money laundering statutes.

[00:12:41] Speaker 03:
They didn't prevent a master account.

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They have the tools to deal with that.

[00:12:46] Speaker 03:
Second, with respect to kind of the core question,

[00:12:49] Speaker 03:
about whether you need to go as far as Judge Bacharach went.

[00:12:53] Speaker 03:
We don't think so, but it's sort of neither here nor there for our case, which of course is entirely legal activity and subject to the anti-money laundering statutes under Wyoming law and under federal law.

[00:13:06] Speaker 03:
And that is to say that we think you could

[00:13:09] Speaker 03:
Judge Bacharach didn't, we think you could read the statute in the context of all the other federal statutes to say that when other federal conduct has made it illegal, for example, in the cannabis context, that the statute doesn't require it.

[00:13:23] Speaker 03:
But we sort of think that's a situation this court could leave unaddressed, given that what our conduct is is entirely legal.

[00:13:30] Speaker 00:
One of the things you said in answering my question was the ability to revoke an account.

[00:13:40] Speaker 00:
So should we be thinking about the ability to revoke differently from the grant of the master account at the outset?

[00:13:49] Speaker 03:
Absolutely, Your Honor.

[00:13:50] Speaker 03:
The grant at the outset is what Congress required.

[00:13:53] Speaker 03:
What Congress said was

[00:13:55] Speaker 03:
it shall be available.

[00:13:57] Speaker 03:
It also said that you are subject to the same tools or subject to the same provisions that the member banks are subject to.

[00:14:07] Speaker 03:
So just like if you commit unlawful activity, of course... Well, let me just follow up with one question.

[00:14:12] Speaker 00:
Yes, of course.

[00:14:13] Speaker 00:
So under your position then,

[00:14:16] Speaker 00:
Let's say that there was some reason to think after your master account was granted that your client's business model or some other factor perhaps under the newly issued guidelines was a cause for concern.

[00:14:30] Speaker 00:
Could the Fed revoke the account the next day?

[00:14:33] Speaker 03:
That's a complicated question.

[00:14:36] Speaker 03:
Let me explain how I think about it.

[00:14:38] Speaker 03:
I think that they could revoke for changes in circumstances just as they could for a member bank.

[00:14:45] Speaker 03:
Your question was, if what you're asking is, could they grant on day one and then with no change in circumstances revoke on day two?

[00:14:52] Speaker 03:
I think the answer to that is no, but because that is effectively undoing 248 AC.

[00:14:59] Speaker 03:
That's just a sham.

[00:15:00] Speaker 03:
So no, I don't think they could grant on day one and then say, aha, we're revoking on day two.

[00:15:05] Speaker 03:
Because if there's a mandatory duty, as we claim there is, you can't

[00:15:09] Speaker 03:
you can't undo that the next day by just pretending and then saying we had it all along.

[00:15:15] Speaker 03:
But if they came across anti-money laundering, violations of the anti-money laundering statute, of course they could take steps just like they did against TD Bank and just like they do every single day and have for the last 45 years since the Monetary Control Act.

[00:15:29] Speaker 03:
take whatever steps are needed to protect the system from wrongdoing.

[00:15:34] Speaker 03:
What we're saying is a very limited but important thing.

[00:15:37] Speaker 03:
What Congress thought was that these were essential services, what they said in the House report, to require a basic level of services, to let the new non-member depository institutions compete at a fair level.

[00:15:50] Speaker 03:
And of course, the Fed has tools to deal with the master account, just like they do with your bank account.

[00:15:57] Speaker 03:
And of course, they have a whole plethora of other tools that are completely untouched.

[00:16:02] Speaker 04:
I'll give you some rebuttal time, but as I understand the custodias business model, you're going to be a depository institution for cryptocurrency.

[00:16:15] Speaker 04:
And you also hold some cash.

[00:16:19] Speaker 04:
And it doesn't look like there's much interaction between those concepts.

[00:16:24] Speaker 04:
What value does a master account have for a bank like Custodia that's going to hold 100% reserves for the cash deposits?

[00:16:33] Speaker 04:
What do you need the master account for?

[00:16:35] Speaker 03:
It's essential, Your Honor, for all of the things that banks do, for example, wiring, sort of essentially the bank-to-bank things, right?

[00:16:43] Speaker 03:
Wiring cash transactions, settling

[00:16:49] Speaker 03:
settling deposit accounts.

[00:16:51] Speaker 03:
I mean, what we are providing is the full range of banking services to crypto, for depository services to the crypto industry.

[00:17:00] Speaker 03:
And what the record shows is that this is essential for allowing us to do things like wire transfer services, if there were check clearing services.

[00:17:10] Speaker 03:
We need access and the record is clear that

[00:17:13] Speaker 03:
Without that, we can't function as the bank.

[00:17:16] Speaker 01:
I understand that if somebody comes in, a depositor or a client of your bank with crypto, and they say, now we'd like to buy something with cash, your bank provides the services of taking their crypto account and converting that to cash and then transferring it out.

[00:17:35] Speaker 01:
Is that wrong?

[00:17:36] Speaker 03:
No, Your Honor, that is not right.

[00:17:37] Speaker 03:
What we are doing is a place like Coinbase makes sales.

[00:17:43] Speaker 03:
It makes money.

[00:17:44] Speaker 03:
It makes a couple million dollars.

[00:17:45] Speaker 03:
It needs some place to put that money.

[00:17:47] Speaker 03:
It gives that money to us.

[00:17:49] Speaker 03:
We don't convert the cryptocurrency into cash.

[00:17:53] Speaker 03:
We take the cash and hold it for them.

[00:17:56] Speaker 03:
And we then allow them to transfer.

[00:17:58] Speaker 03:
They could wire it to their employees, for example, for payroll.

[00:18:01] Speaker 03:
They could send it to another company, like as Your Honor surely do with your bank accounts, to wire money away.

[00:18:08] Speaker 03:
We are not in the business of exposing ourselves

[00:18:13] Speaker 03:
personally to investments in crypto.

[00:18:18] Speaker 03:
We have trust.

[00:18:19] Speaker 03:
No, that's not what I said.

[00:18:20] Speaker 01:
I think what you just said is what I understood it to be.

[00:18:22] Speaker 01:
OK.

[00:18:23] Speaker 01:
But never mind, we're already well into your time.

[00:18:25] Speaker 01:
Let's not pursue that any further.

[00:18:27] Speaker 01:
OK.

[00:18:28] Speaker 03:
But the key thing there, I think, is that the business model we have under Wyoming law is that we are basically holding the cash and providing the banking services to the crypto industry.

[00:18:39] Speaker 03:
And that's the core of our business.

[00:18:42] Speaker 04:
You've asked for a remedy of mandamus here, but you did not name the KC Fed President.

[00:18:51] Speaker 04:
To whom would a mandamus order be directed?

[00:18:53] Speaker 04:
So, Your Honor, a couple of things on that.

[00:18:56] Speaker 03:
I mean, our big picture point on mandamus, before I get to Your Honor's specific point, if I could, is like we have named the, we've sought mandamus against the Board.

[00:19:04] Speaker 03:
We've sought APA against the Board.

[00:19:06] Speaker 03:
We've sought mandamus against the Federal Reserve Bank of KC.

[00:19:10] Speaker 03:
And then to get to your honor's specific point, in paragraph 89 of the amended complaint, we say that the Kansas City Fed's president is an officer of the United States and thus is also subject to the court's mandamus power.

[00:19:24] Speaker 03:
So we have covered the waterfront here, right?

[00:19:29] Speaker 03:
The only way mandamus isn't available or review isn't available is if there's assuming a mandatory duty, is if that mandatory duty is unavailable and even my colleagues don't assert that to be the case.

[00:19:41] Speaker 03:
They recognize that if there's a mandatory duty, relief would be available.

[00:19:48] Speaker 03:
that it's not uncommon in the mandamus context to actually just sue an agency, and the Rothman decision that we cite in the Fourth Circuit says it expressly.

[00:19:57] Speaker 04:
The Fed might be an agency, but the bank probably isn't, although I think the Fed's disclaiming any authority to

[00:20:06] Speaker 04:
forced the bank to grant the master account, right?

[00:20:09] Speaker 03:
Yes, Your Honor.

[00:20:09] Speaker 03:
But what the Fed, the Federal Reserve, the Casey Fed has said over and over in its pleadings is that if there's a mandatory duty, we'll get it.

[00:20:17] Speaker 03:
But could I explain the mandamus against the Fed?

[00:20:20] Speaker 03:
It's like in the nature of a mandamus.

[00:20:22] Speaker 03:
What the Rockman case said and what the common law made clear is that mandamus is available, or relief, I would be more precise and say relief in the nature of mandamus, is available

[00:20:34] Speaker 03:
against a private corporation with a public duty.

[00:20:37] Speaker 03:
The Supreme Court case, which we cite in our brief, Northwest Pacific Railroad, is a common situation, right?

[00:20:42] Speaker 03:
You had a railroad subject to a statutory duty to build a line or maintain a bridge.

[00:20:47] Speaker 03:
The common law allowed a writ of mandamus or the equivalent to run against that corporation.

[00:20:52] Speaker 03:
So I think the way we see it against the Fed is it doesn't matter whether, I'm sorry, against the KC Fed.

[00:20:58] Speaker 03:
It doesn't matter whether the KC Fed is an agency or a private corporation.

[00:21:02] Speaker 03:
It has a public duty under the statute to act, which is enforceable under an action in the nature of mandamus.

[00:21:12] Speaker 03:
Now, with respect, whether we also then identified in paragraph 89 of the amended complaint, the KC Fed president, and as I said, said it's an officer of the United States and also subject to the court's mandamus power.

[00:21:24] Speaker 03:
So whether you view it as a writ against the corporation

[00:21:30] Speaker 03:
And whether it is a private corporation or an agency, or whether it's against the president, we're covered.

[00:21:35] Speaker 03:
And indeed, the Rockman decision, again, we cite in our brief from the Fourth Circuit, says, if you bring a writ of mandamus, or the equivalent, against a corporation, but don't name the CEO, that's sufficient.

[00:21:46] Speaker 03:
And there are lots of cases from this court, if I could just finish that sentence.

[00:21:50] Speaker 03:
I know I've been going for a second, I've been on this.

[00:21:52] Speaker 03:
There are lots of cases on this court where in a mandamus or mandamus-like action, the defendant is just the agency.

[00:21:57] Speaker 03:
They didn't name the head of the agency.

[00:21:59] Speaker 03:
And this court has issued the necessary relief to make that happen.

[00:22:04] Speaker 03:
All right, thank you.

[00:22:05] Speaker 03:
I'll give you two minutes for rebuttal.

[00:22:06] Speaker 04:
Do you have any additional questions for this round?

[00:22:09] Speaker 04:
All right, thank you.

[00:22:09] Speaker 04:
Thank you, Your Honor.

[00:22:13] Speaker 04:
I think first up is Mr. Chadwick.

[00:22:19] Speaker 05:
Yes, Your Honor.

[00:22:19] Speaker 05:
Good morning.

[00:22:20] Speaker 05:
Joshua Chadwick on behalf of the Federal Reserve Board.

[00:22:22] Speaker 05:
Mr. Buchholz, who represents the Thurser Bank of Kansas City, and I are going to endeavor to split our time in half here, so I will try to focus.

[00:22:31] Speaker 05:
What I'm going to talk about today, obviously subject to your Honor's questions, is Section 248A.

[00:22:37] Speaker 04:
Before you get there, could you just respond on the mandamus question that we were just finishing up on?

[00:22:42] Speaker 05:
Sure, Your Honor.

[00:22:43] Speaker 05:
I think from the Board's perspective, I think you've used this, it's correct to say that the Board does not believe that it's able to provide the relief here that they're seeking.

[00:22:52] Speaker 05:
So any relief that they're seeking would have to flow through the Reserve Bank.

[00:22:58] Speaker 04:
The Casey Fed has basically non-revealable discretionary power to deny a master account, is that the Board of Governors' perspective?

[00:23:10] Speaker 05:
Well, I'm not sure that it's our perspective that they have non-reviewable discretion.

[00:23:14] Speaker 04:
It is true that... Judicial reviewable.

[00:23:18] Speaker 05:
Well, certainly there's the issue of regulatory through the board or congressional action.

[00:23:24] Speaker 05:
But separate and apart from that, I don't think it's our position that there's no claims that can be brought against the Federal Reserve Bank in this general sphere.

[00:23:31] Speaker 05:
It is true in other cases that the reserve banks and the board as well have taken the position that they're not APA agencies.

[00:23:40] Speaker 05:
But they have a sue and be sue clause.

[00:23:44] Speaker 05:
They do not claim sovereign immunity.

[00:23:46] Speaker 05:
So they're subject to all manner of other claims, common law, statutory, conceivably even constitutional claims.

[00:23:53] Speaker 05:
But they're not subject to arbitrary and capricious review under the APA.

[00:23:58] Speaker 04:
So there really is no standard to review the denial of an applicant bank, is there?

[00:24:07] Speaker 05:
Well, Section 342 says may.

[00:24:10] Speaker 05:
So it's clear that Congress granted broad discretion to the Reserve banks in terms of what account decisions they may make.

[00:24:21] Speaker 05:
If that were a board decision, that would be a different circumstance.

[00:24:25] Speaker 05:
Congress structured the Federal Reserve in a very careful way to place Reserve banks in a place that's separate and apart from the sovereign.

[00:24:32] Speaker 05:
They aren't federal agencies.

[00:24:34] Speaker 05:
But that doesn't mean that every action they take is not subject to some claims.

[00:24:40] Speaker 05:
They're being sued here.

[00:24:41] Speaker 05:
The claim that plaintiffs have brought is a statutory claim that says this duty is absolute.

[00:24:48] Speaker 05:
That seems like an incredible claim, frankly.

[00:24:52] Speaker 04:
It seems like your position is that you're a bit player, really a non-actor in this case, because all the action is with the Casey Fed.

[00:25:02] Speaker 04:
There's no action for the board.

[00:25:04] Speaker 04:
And you know there's some evidence in the record of the collaboration by the board and by the KC Fed.

[00:25:15] Speaker 04:
Should we, is that something that we should consider in evaluating the relationship between the two entities or is the board able to basically ask but not command the KC Fed to deny an account?

[00:25:32] Speaker 05:
You know, I think the board's role is clear from the record here, Your Honor.

[00:25:35] Speaker 05:
The board established guidelines.

[00:25:37] Speaker 05:
It does have general supervisory authority.

[00:25:39] Speaker 05:
It promulgated guidelines for reserve banks to consider with the goal of having some level of consistency across the system without removing discretion that the reserve banks have always had since 1913 under the Federal Reserve Act.

[00:25:53] Speaker 05:
So the actual role here

[00:25:55] Speaker 05:
for the Board is to ensure some level of consistency across its guidelines and to have insight into what's occurring around the system.

[00:26:04] Speaker 05:
But there's nowhere, I mean, the Board's own guidelines are clear that this decision rests with the Reserve Bank.

[00:26:13] Speaker 04:
Yeah, it's just advisory, right?

[00:26:15] Speaker 04:
The guidelines are advisory.

[00:26:17] Speaker 04:
That's correct, Your Honor.

[00:26:18] Speaker 00:
Yeah, I wanted to follow up about the guidelines.

[00:26:21] Speaker 00:
These guidelines were issued during the pendency of Custodia's application, is that right?

[00:26:26] Speaker 05:
That's correct, Your Honor.

[00:26:27] Speaker 00:
So I'm wondering how you would invite us to think about that fact when, you know, there have been maybe a few instances of master account denials, all very recent.

[00:26:41] Speaker 00:
There's a claim of absolute discretion, but no principles exercising

[00:26:46] Speaker 00:
no principles for guiding the exercise of that discretion until just now.

[00:26:50] Speaker 00:
So, you know, the facts on the ground could be understood as the guidelines are issued to seize discretion where there wasn't any before.

[00:27:01] Speaker 00:
Why shouldn't we be thinking about it that way?

[00:27:03] Speaker 05:
Well, a couple reasons, Shana.

[00:27:05] Speaker 05:
One, I would push back on the idea that there was nothing there in place before.

[00:27:09] Speaker 05:
I think the guidelines made some effort to

[00:27:12] Speaker 05:
bring some uniformity across the system, but I think Mr. Buchholz and the Reserve Bank brief makes quite clear that the individual Reserve Banks, whether it be Kansas City or New York, had these processes in place.

[00:27:25] Speaker 05:
And when the Board promulgated the guidelines, it made efforts to take into consideration these sorts of risk factors that have always been considered by the individual Reserve Banks.

[00:27:36] Speaker 05:
But on the timing question, I think it is true that if you look starting with Fourth Corner

[00:27:41] Speaker 05:
with this case, with Banco San Juan, with the narrow bank case out of New York.

[00:27:46] Speaker 05:
It is true that there's been a proliferation of novel charters that are presenting new and complex risk issues.

[00:27:54] Speaker 05:
So even though the reserve banks have always been assessing risk, the board did determine that there was some value in bringing some level of consistency, at least in terms of the factors being considered, because of these new and novel institutions.

[00:28:10] Speaker 05:
Yes, Custody is one of them, but one of many, as these various cases show.

[00:28:15] Speaker 04:
How could, as Mr. Gerson-Schorn explained their business model, they're going to have their crypto account, and I'm using it that loosely, and their cash account.

[00:28:29] Speaker 04:
And the cash account is what they need access to the master account for, for the bank services.

[00:28:40] Speaker 04:
How could that really introduce any significant risk into the system if there's no overlap in those services?

[00:28:51] Speaker 04:
It just basically seems like a garden variety bank that has cash reserves of 100% of its deposits.

[00:28:58] Speaker 04:
It seems like this would be less risky than other types of banks that have failed recently, Silicon Valley Bank, others.

[00:29:07] Speaker 04:
Why is there any risk attributable to this business model?

[00:29:10] Speaker 05:
Well, I will defer to Mr. Buchholz, Your Honor, on the risk factors that the Kansas City Reserve Bank considered and what their decision was because, as I say, it wasn't... Well, I think you're defending your guidelines.

[00:29:20] Speaker 05:
Your guidelines were applied properly, aren't you?

[00:29:23] Speaker 05:
We do think they were applied properly, Your Honor, but in terms of the factors that were considered, and there were a lot.

[00:29:29] Speaker 05:
I mean, the level of diligence, you know, the services were available generally to custodian the same way they're available generally to non-member banks and have been since Congress

[00:29:40] Speaker 05:
modified Section 342 in 1980 to give Reserve Bank's authorization to accept the deposits, to offer full-service deposit accounts.

[00:29:49] Speaker 05:
But the Reserve Bank went through a tremendous amount of diligence, tremendous amount of diligence.

[00:29:53] Speaker 05:
The amount of effort that was expended to analyze and assess the risks here is not insignificant, Your Honor.

[00:30:00] Speaker 05:
It's quite significant.

[00:30:02] Speaker 05:
I have a question.

[00:30:03] Speaker 05:
How often have you revoked a master account?

[00:30:09] Speaker 05:
I don't have the data on it, Your Honor.

[00:30:10] Speaker 05:
It certainly has happened.

[00:30:11] Speaker 05:
You know, the Banco San Juan case is obviously a prime example.

[00:30:15] Speaker 05:
And are there standards for revocation?

[00:30:18] Speaker 05:
The guidelines apply both to new account requests and to revoked requests.

[00:30:24] Speaker 05:
So whether or not, if a new institution comes and there's concerns about money laundering, for example, at that stage, then the account could be rejected, because that's one type of risk, right?

[00:30:34] Speaker 05:
The individual reserve banks, the Federal Reserve at large cannot be

[00:30:38] Speaker 05:
co-opted into money laundering.

[00:30:40] Speaker 05:
And if during the pendency of that account, if that's not a risk that's identified early on, if during the account relationship the Reserve Bank determines that there is an unacceptable risk of money laundering through that institution, then they can invoke that account.

[00:30:54] Speaker 01:
The same standard would apply, Your Honor.

[00:30:57] Speaker 01:
What, if any, impact should we give to the new regs that have just been adopted recently, I guess, on how these things will be regulated?

[00:31:10] Speaker 05:
On digital assets, Your Honor?

[00:31:13] Speaker 05:
Yeah.

[00:31:13] Speaker 05:
Well, it's an evolving space, Your Honor.

[00:31:15] Speaker 05:
I think that as the regulatory landscape develops, as Congress may or may not take action,

[00:31:22] Speaker 05:
as the other banking agencies determine what is legally permissible or not for banks?

[00:31:26] Speaker 01:
I mean, when we're considering whether relief is needed, can we take into account not what existed at the time of trial or the rulings, but these new regs that have now been adopted, whether that ameliorated at least some of the risks that have been alleged?

[00:31:44] Speaker 01:
I don't think so, Your Honor, except I would say that these sorts of decisions... You don't think we can take them into account, or you don't think we should,

[00:31:50] Speaker 01:
I think we should and could.

[00:31:53] Speaker 05:
I don't think you should and I don't think that you can.

[00:31:58] Speaker 05:
At least from the board's perspective, this is an Administrative Procedure Act record review case.

[00:32:02] Speaker 05:
That information's not in the record.

[00:32:04] Speaker 05:
These denials in this case or the other account relationships, they're subject, they're non-prejudicial.

[00:32:10] Speaker 05:
So an account holder or an entity that desires to hold an account can always come back and make a request based on the existing

[00:32:18] Speaker 05:
legal factual landscape as it exists at that time.

[00:32:21] Speaker 04:
And before you sit down, just the who does the revocation would not be the board or the Fed.

[00:32:30] Speaker 04:
It would be the regional bank.

[00:32:32] Speaker 04:
So it would be the Casey Fed here in San Juan.

[00:32:36] Speaker 04:
It would have been the New York Fed.

[00:32:38] Speaker 04:
That's correct, Your Honor.

[00:32:39] Speaker 04:
And does the board have any role in the revocation decision?

[00:32:45] Speaker 05:
The guidelines apply to the revocation decision as well.

[00:32:48] Speaker 04:
I know, but the Fed can't disagree with a regional bank's decision to either... I mean, let me just be clear.

[00:32:57] Speaker 04:
You have no supervisory legal authority to review the decision by the KC Fed to either grant or revoke a master account.

[00:33:07] Speaker 05:
That's correct, Your Honor.

[00:33:07] Speaker 04:
The Board could share its view, and the President of the Reserve Bank could take their own counsel and do... What if you had a Fed bank out there that's denying accounts for

[00:33:17] Speaker 04:
plainly impermissible reasons.

[00:33:19] Speaker 04:
We're going to deny master accounts for every black-owned bank.

[00:33:24] Speaker 04:
You have no power to direct them otherwise?

[00:33:29] Speaker 05:
I would say in that case, Your Honor, that the Board would remove the president of the Reserve Bank, which is an authority provided to the Board under the Federal Reserve Bank.

[00:33:35] Speaker 05:
There may be other claims that they could direct, but the Board would not permit that in that circumstance.

[00:33:38] Speaker 05:
You couldn't do anything about the master account, though.

[00:33:41] Speaker 04:
Say that again, Your Honor.

[00:33:43] Speaker 04:
You couldn't direct the Board president to grant a master account

[00:33:47] Speaker 04:
in those circumstances, you can only remove him or her.

[00:33:50] Speaker 05:
I think what the board would say in that circumstance, Your Honor, is that's intolerable and unacceptable.

[00:33:56] Speaker 05:
And if you continue to do it, then you'll be removed.

[00:33:59] Speaker 04:
But for whatever persuasive power it had, though?

[00:34:02] Speaker 04:
No legal authority to direct it to?

[00:34:05] Speaker 01:
Correct, Your Honor.

[00:34:07] Speaker 01:
Well, but when you can discharge a local bank, regional bank president,

[00:34:14] Speaker 01:
then does the Federal Reserve then have the power of appointing the replacement?

[00:34:20] Speaker 05:
The Board of Directors for the individual Reserve Bank, subject to the Board of Governors' approval, Your Honor.

[00:34:26] Speaker 04:
So the Casey Fed would select its next President, subject to the approval of the Board of Governors.

[00:34:31] Speaker 04:
That's correct, Your Honor.

[00:34:34] Speaker 04:
Thank you.

[00:34:35] Speaker 04:
Thank you.

[00:34:38] Speaker 04:
All right.

[00:34:39] Speaker 04:
We took a lot of your time, I presume, Mr. Buchholz.

[00:34:45] Speaker 04:
Could you, Ali, could you give seven minutes, please?

[00:34:50] Speaker 02:
Thank you, Your Honors.

[00:34:51] Speaker 02:
Good morning, Your Honors.

[00:34:52] Speaker 02:
May it please the court, Jeffrey Buchholz, for the Kansas City Reserve Bank.

[00:34:55] Speaker 02:
I'd like to try to cover four things in my time here, Your Honors, in response to the questions that you've already asked.

[00:35:01] Speaker 02:
First, Judge Timkovich, early on, you asked about the relationship between 342 and 248A.

[00:35:07] Speaker 02:
And then second, and I'll come back to that in a second, I just want to list the four things that I want to cover to make sure that they address the fine, Your Honors.

[00:35:12] Speaker 01:
Yeah, I'm glad you did.

[00:35:13] Speaker 02:
That's important to me.

[00:35:14] Speaker 02:
Thank you.

[00:35:15] Speaker 02:
Judge Ebell and Judge Rosman, you both asked about questions about this idea that there's no history of discretion or whether we've disclaimed having discretion.

[00:35:22] Speaker 02:
I want to try to clarify that, because I think that's really important.

[00:35:25] Speaker 02:
It's an important backdrop for this case.

[00:35:27] Speaker 02:
Third, Judge Rosman, you asked about the difference between outright admitted or adjudicated illegal conduct and risk.

[00:35:34] Speaker 02:
And I want to talk about that, because I think that's really important to this case as well.

[00:35:38] Speaker 02:
And then fourth, a number of your honors have asked questions about whether

[00:35:42] Speaker 02:
Discretion is unreviewable, whether there are avenues of judicial review, things like that.

[00:35:47] Speaker 02:
I want to address that as well.

[00:35:49] Speaker 02:
Starting with the statute, 342 and 248A.

[00:35:52] Speaker 02:
Mr. Gershengorn began this morning by saying Congress in 248A mandated that all non-member banks who are eligible under the statute are entitled to access these services.

[00:36:05] Speaker 02:
That's actually not what 248A says.

[00:36:08] Speaker 02:
And the statute that's really controlling here

[00:36:12] Speaker 02:
In our view is 342.

[00:36:13] Speaker 02:
342 for 115 years has given Reserve banks discretion about whether to receive deposits.

[00:36:22] Speaker 02:
It says may receive deposits.

[00:36:23] Speaker 02:
That language has not changed since 1913.

[00:36:25] Speaker 02:
In 1917, the class of people who the Reserve banks were authorized but not required to receive deposits from was enlarged to include clearing accounts, not full service deposit accounts, but check clearing accounts for nonmembers.

[00:36:39] Speaker 02:
And then in 1980,

[00:36:41] Speaker 02:
Congress enlarged that class further and gave reserve banks the authority to receive deposits for full service basis, not limited to check clearing, from non-member banks.

[00:36:51] Speaker 02:
But Congress preserved the may receive deposits language that the Supreme Court 100 years ago authoritatively construed to give the reserve banks the discretion but not the obligation to receive deposits.

[00:37:03] Speaker 04:
The same question I asked your friend, could the KC Fed

[00:37:10] Speaker 04:
grant the master account and then deny under 248 and then deny deposits under 342?

[00:37:16] Speaker 02:
Well, so your honor, I think that question points up that the point that I'm trying to make here, which is it doesn't make any sense to adopt a holding that 248A absolutely entitles everyone who's eligible to a master account when 248 doesn't mention master accounts and isn't about accepting deposits.

[00:37:31] Speaker 02:
There's another statute for that, 342, which the Supreme Court has held gives Reserve Bank's discretion but not the obligation because yes,

[00:37:39] Speaker 02:
Reserve Bank would have the discretion, we know this because the Supreme Court so held, to decline to accept deposits from a given entity that was eligible under 342 to make deposits.

[00:37:50] Speaker 02:
And so there's something wrong with the statutory interpretation that tries to jam into 248A, a rule that 248A doesn't enunciate, and that would conflict with the Supreme Court's interpretation of 342.

[00:38:03] Speaker 02:
What 248A says is not that, I mean, it does contain the language shall be available.

[00:38:09] Speaker 02:
to non-member banks, but it does contain that language.

[00:38:12] Speaker 02:
But what comes before that isn't, reserve banks shall make these services available to all non-member banks.

[00:38:18] Speaker 02:
It's a pricing principle for the board.

[00:38:20] Speaker 02:
The whole statute's directed to the board, not to the reserve banks.

[00:38:23] Speaker 04:
If the KC Fed rejects or denies deposits under 342, is that decision judicially reviewable?

[00:38:33] Speaker 02:
So, Your Honor, I'm glad you asked that question, because as I said in my introduction, I wanted to get to the reviewability issues.

[00:38:39] Speaker 02:
So we know, again, the Supreme Court has said that 342 gives reserve banks discretion.

[00:38:44] Speaker 02:
So in general, the reserve banks would have the authority on their own to make that discretionary decision.

[00:38:49] Speaker 02:
But we have never claimed, in this case, and as far as I know, no reserve bank has ever claimed, the absolute unreviewable discretion to refuse to accept the deposit for a legally impermissible reason.

[00:39:01] Speaker 02:
I mean, Your Honor asked about race discrimination.

[00:39:02] Speaker 02:
A reserve bank could not say, we decline to accept deposits from

[00:39:07] Speaker 02:
blanks, banks that are owned by black people because we don't like black people, that obviously would be impermissible.

[00:39:11] Speaker 04:
Would it be impermissible under the statutory scheme or some other?

[00:39:16] Speaker 04:
I think, is your position that a plaintiff could sue and get mandamus against the KC Fed as a quasi-private corporation or

[00:39:28] Speaker 04:
There's no APA review here, is there?

[00:39:30] Speaker 02:
So a couple answers there, Your Honor.

[00:39:32] Speaker 02:
First, the sort of technical issue about whether the mandamus statute applies, and then second, what the actual rule of law would be that would govern it, about whether the plaintiff in that case was entitled to relief.

[00:39:41] Speaker 02:
So we have not argued in this case that the mandamus statute is not available to custodia.

[00:39:47] Speaker 02:
If custodia is right about their absolute entitlement theory, of course, we don't think they're right about that.

[00:39:51] Speaker 02:
But if they were, we'd never argue

[00:39:53] Speaker 02:
that the court can't grant mandamus because they didn't name our president, they only named the bank.

[00:39:57] Speaker 02:
We could have said that below, or then they would have just amended their complaint and named the president as the additional defendant.

[00:40:02] Speaker 04:
Yeah, if we ruled against you, would the bank grant the master account?

[00:40:06] Speaker 02:
We might petition for cert first, Your Honor, and I'll gander.

[00:40:08] Speaker 02:
But yes, if the end result of this case is a holding that they're entitled to a master account, we've said loud and clear in our briefs, we'll give them a master account.

[00:40:15] Speaker 02:
There's no circumvention.

[00:40:17] Speaker 02:
There's no game playing here.

[00:40:18] Speaker 02:
We're just trying to get the court to address the issue of law.

[00:40:22] Speaker 02:
They're not entitled to that as a matter of right.

[00:40:24] Speaker 02:
But back to your honor's question about a hypothetical where, of course, I don't think this would ever happen in real life, but if a reserve bank actually denied a master account or did something else in the context of deciding whether to accept deposits even after an account had been granted in the first place for an invidious reason like racial discrimination, this case doesn't present any issue like that.

[00:40:46] Speaker 02:
So it's difficult to say in the abstract, but as Mr. Chadwick said,

[00:40:50] Speaker 02:
There are a variety of claims that somebody could bring in a situation like that.

[00:40:53] Speaker 02:
I mean, the Reserve Banks are not APA agencies, in our view.

[00:40:57] Speaker 02:
And of course, custodians abandon the claim that the Kansas City Reserve Bank is an APA agency.

[00:41:02] Speaker 02:
So that's not before the court.

[00:41:03] Speaker 02:
But just because you're not an APA agency does not necessarily mean the Constitution doesn't apply to your conduct.

[00:41:08] Speaker 02:
The Constitution applies to a broader universe of actors than just APA agencies.

[00:41:13] Speaker 02:
So in a situation like invidious discrimination on the basis of race, then the Constitution might well apply.

[00:41:18] Speaker 02:
And somebody might have a remedy.

[00:41:20] Speaker 02:
Not under the APA, but under the Constitution.

[00:41:23] Speaker 04:
Let's leave the Constitution.

[00:41:25] Speaker 04:
Let's say the KC Fed is going to adopt a policy rejecting all crypto adjacent oriented banks.

[00:41:35] Speaker 04:
We're not going to give master accounts to any crypto bank.

[00:41:39] Speaker 04:
Could you do that?

[00:41:41] Speaker 02:
I think if a reserve bank had good reasons for exercising its discretion in saying that because of the business model, because of the

[00:41:49] Speaker 04:
And how would those good reasons be reviewed?

[00:41:51] Speaker 04:
It still seems to me, I thought your position was that you are not subject to judicial review for, I guess, non-inviteous denials of master accountances.

[00:42:03] Speaker 02:
So Your Honor, it's difficult for me to say in the abstract the total, the complete answer to what sort of claims somebody else could bring about a denial on different bases than an issue here.

[00:42:13] Speaker 02:
So I hope I can answer your question as best I can.

[00:42:17] Speaker 02:
The Constitution might apply for the reasons we've talked about.

[00:42:19] Speaker 02:
Second, reserve banks have a sue and be sued clause.

[00:42:22] Speaker 02:
They can be sued under state law.

[00:42:23] Speaker 02:
There's no sovereign immunity.

[00:42:24] Speaker 02:
So this isn't like a case against the government where you have to think, how does someone get into court in the first place?

[00:42:29] Speaker 02:
You can get into court against a reserve bank.

[00:42:31] Speaker 02:
And there could be state law claims in different situations.

[00:42:33] Speaker 02:
Of course, state law that conflicts with federal law is not valid.

[00:42:37] Speaker 02:
So if a state law purported to say you don't have discretion, where 342 says you do, well, then that wouldn't work.

[00:42:43] Speaker 02:
342 doesn't, in our view, give us absolute, unreviewable discretion to make a decision for any reason, including an invidious one.

[00:42:50] Speaker 02:
So depending on the facts, depending on the theory alleged, there could be avenues of judicial review.

[00:42:55] Speaker 02:
All I would emphasize here is that Custodia has chosen, I think Judge Ebell, you made this point earlier, to rely only on this absolute entitlement theory.

[00:43:03] Speaker 02:
So whether we have absolute discretion is not the issue here.

[00:43:06] Speaker 02:
Whether they have an absolute entitlement is the issue.

[00:43:08] Speaker 02:
We have not claimed to have absolute, unreviewable discretion.

[00:43:12] Speaker 02:
That question isn't before the court.

[00:43:14] Speaker 02:
All the court needs to decide here is they don't have an absolute entitlement.

[00:43:17] Speaker 02:
We have at least some discretion.

[00:43:19] Speaker 02:
And to get back to 342 and 248A and how they relate to each other, their position is that in a statute directed to the board, which can't and doesn't actually open accounts, that isn't about opening an account, that isn't about deposits, that Congress, just because it used the word, shall be available to nonmember banks in a pricing principle, telling the board how to set prices for the services,

[00:43:42] Speaker 02:
that that overrides what the Supreme Court held 342 means.

[00:43:45] Speaker 02:
That's backwards, Your Honor.

[00:43:46] Speaker 02:
There's a statute that governs whether reserve banks can accept, can or have to accept deposits from non-member banks.

[00:43:54] Speaker 02:
The way you accept deposits is in a master account.

[00:43:57] Speaker 02:
Master account is just sort of a fancy word for a deposit account.

[00:44:00] Speaker 02:
replacing a regime where you could have multiple deposit accounts at reserve banks.

[00:44:03] Speaker 02:
Now you have one, that's why they call it a master account, but it's just a deposit account.

[00:44:06] Speaker 00:
So there's no problem in 342 that doesn't use the words master account.

[00:44:10] Speaker 00:
We shouldn't be reading anything from the absence of that language there.

[00:44:14] Speaker 02:
Correct, Your Honor.

[00:44:15] Speaker 02:
I don't think that matters.

[00:44:16] Speaker 02:
342 again dates back to 1913.

[00:44:17] Speaker 02:
The term master account is a newer term, but it's just a new term for an old thing.

[00:44:23] Speaker 02:
The thing is a deposit account.

[00:44:25] Speaker 02:
The deposit account has existed since the beginning of the Federal Reserve System.

[00:44:28] Speaker 02:
Who is eligible to deposit into a deposit account has expanded over time.

[00:44:35] Speaker 02:
Initially only members, then only members on a full service basis, but also non-members on a limited check clearing purpose basis.

[00:44:42] Speaker 02:
And then in 1980, non-members and members on an equal basis.

[00:44:46] Speaker 02:
But when Congress enacted the Monetary Control Act and added 248A, it amended 342.

[00:44:54] Speaker 02:
So if Congress had wanted to say, now that we're opening nonmembers up on an equal basis to members for full service deposit accounts, we're going to make it mandatory, the place to do that would have been 342.

[00:45:05] Speaker 02:
Congress didn't forget 342 existed.

[00:45:07] Speaker 02:
Congress didn't forget 342 governed access to deposit accounts.

[00:45:11] Speaker 02:
It amended 342 in the Monetary Control Act.

[00:45:14] Speaker 02:
It expanded the class of people who the reserve banks had authority but not the obligation to accept deposits from.

[00:45:20] Speaker 02:
And it preserved the may receive deposits language that the Supreme Court held.

[00:45:24] Speaker 02:
provided discretion.

[00:45:25] Speaker 01:
That may be one of the arguments that really resonates with me, that this is a very odd place to put in a prescription eliminating discretion of the banks.

[00:45:40] Speaker 01:
I'm sure you've looked at all the legislative history and you've given us everything there is out there on that, but it's just a very odd place for it.

[00:45:49] Speaker 02:
I agree, Your Honor.

[00:45:50] Speaker 02:
It's a backwards, indirect

[00:45:52] Speaker 02:
unclear way of doing something that would be a very big deal.

[00:45:56] Speaker 01:
But you're telling us now, you just said that both the Monetary Control Act and the Federal Reserve Bank Act were being amended at exactly the same time?

[00:46:09] Speaker 02:
The Monetary Control Act amended the Federal Reserve Act.

[00:46:12] Speaker 02:
It added Section 248A and it amended Section 342 at the same time in the same enactment, the Monetary Control Act.

[00:46:19] Speaker 02:
So to answer your Honor's question,

[00:46:21] Speaker 02:
And again, this goes back to the point I said that I wanted to address before about the sort of history or backdrop of the exercise of discretion or not.

[00:46:29] Speaker 02:
So our briefs go through a number of examples of this, and so does the board's brief.

[00:46:33] Speaker 02:
Over time, from the beginning of the Federal Reserve System, where reserve banks thought that they had discretion about whether to accept deposits, whether to open an account.

[00:46:42] Speaker 02:
Of course, they didn't have any discretion to open regular full-purpose deposit accounts for nonmembers until 1980.

[00:46:49] Speaker 02:
But the universe of actors who they had discretion, excuse me, who they had authority to open accounts for, accept deposits from, they thought that was discretionary.

[00:46:57] Speaker 02:
And the Supreme Court then so held in farmers' emergence.

[00:47:01] Speaker 02:
In the legislative history for the Monetary Control Act, and in all of the statements that my friend on the other side cites from the board or from reserve banks in the aftermath of the Monetary Control Act, yes, there are offhand references to now all depository institutions, not just members, have access to these services.

[00:47:19] Speaker 02:
There is not a single statement in the hundreds of pages of briefing in this case, not a single statement that anyone has been able to find ever where a reserve bank or the board disclaimed having discretion to deny an account on the basis of risk.

[00:47:32] Speaker 02:
That has never happened.

[00:47:33] Speaker 04:
It has never happened.

[00:47:34] Speaker 04:
Under your theory of interpreting 342, can the Casey Fed deny master accounts to member banks?

[00:47:42] Speaker 02:
Yes.

[00:47:44] Speaker 02:
Yes, absolutely.

[00:47:45] Speaker 02:
I mean, 342, again, we know because this ring court is so held,

[00:47:48] Speaker 02:
says you have discretion whether to accept deposits.

[00:47:51] Speaker 02:
The thing you accept deposits into now is called a master account.

[00:47:54] Speaker 02:
It used to just be called an account.

[00:47:55] Speaker 02:
It's the same thing.

[00:47:56] Speaker 02:
It just has a new name.

[00:47:58] Speaker 02:
And so yes, if a member presented the kinds of risks that the Kansas City Reserve Bank found here without challenge by custodian merits, the custodian's request presented, then yes, the Reserve Bank could and I think would deny a master account to a member.

[00:48:13] Speaker 02:
So all that.

[00:48:15] Speaker 04:
Thank you, Counselor.

[00:48:17] Speaker 04:
Go ahead and sum up, and then we'll give Mr. Gershon Horne some rebuttal.

[00:48:22] Speaker 02:
Thank you, Your Honor.

[00:48:22] Speaker 02:
The last thing I was just going to say is on the unreviewable discretion questions that Your Honors have asked.

[00:48:26] Speaker 02:
I understand that Your Honors have questions and concerns about the notion that reserve banks might have unreviewable discretion about whether to open accounts.

[00:48:36] Speaker 02:
Again, we haven't argued that reserve banks have unreviewable or absolute discretion about whether to open a master account.

[00:48:42] Speaker 02:
Custodia has chosen,

[00:48:43] Speaker 02:
in this case, to limit this case to an absolute entitlement theory, we have no discretion.

[00:48:48] Speaker 02:
So the exact contours or limits on the discretion that we have, or what avenues might be available to challenge this exercise, not presented here.

[00:48:56] Speaker 04:
Since you mention it, then give me a hypothetical example of a denial that we can and should review.

[00:49:08] Speaker 02:
Well, I think Your Honor's question earlier about... I.e.

[00:49:10] Speaker 04:
where your discretion could be challenged.

[00:49:13] Speaker 02:
I think Your Honor's question earlier about race discrimination or some other kind of invidious reason, but we have never claimed the authority to make decisions on those kinds of a basis.

[00:49:21] Speaker 02:
And so if somebody actually, I don't think this would ever happen.

[00:49:25] Speaker 02:
If somebody pleaded this, they might not plead it with adequate facts and it might not be a plausible claim.

[00:49:29] Speaker 02:
But if somebody actually pleaded a plausible claim of some kind of invidious discrimination and a master account decision, I don't think that would be unreviewable.

[00:49:37] Speaker 02:
I mean, I don't know because that's never been litigated.

[00:49:39] Speaker 02:
Whether reserve banks are subject to the Constitution, the Fifth Amendment's protections in that situation, you know, is a question of first impression.

[00:49:46] Speaker 02:
But I have difficulty personally believing there would be no avenue of review in that kind of a case.

[00:49:51] Speaker 04:
All right.

[00:49:51] Speaker 04:
Council, thank you.

[00:49:52] Speaker 04:
We appreciate your argument.

[00:49:53] Speaker 02:
Thank you very much.

[00:49:55] Speaker 04:
Two minutes, please, for rebuttal.

[00:49:58] Speaker 03:
Thank you, Your Honor.

[00:49:59] Speaker 03:
I'm going to try to make four points, so I'll talk fast.

[00:50:01] Speaker 03:
First, on mandamus, I heard Mr. Buchholz to agree that there is no mandamus problem with the claim that we are bringing.

[00:50:10] Speaker 03:
And so I hope the court's concerns there are resolved.

[00:50:14] Speaker 03:
I will say this back and forth on unreviewable discretion seems to me astonishing given that they prevailed in Banco San Juan on the argument that they had unreviewable discretion to deny the Banco San Juan.

[00:50:26] Speaker 03:
Whether that was correct or not,

[00:50:28] Speaker 03:
For the Casey Fed to say they've never taken that position when they prevailed on the very argument that it was their unreviewable discretion is hard for me to understand.

[00:50:36] Speaker 01:
Are you arguing the separate defense of a judicial inconsistent statements?

[00:50:40] Speaker 03:
No, Your Honor, because we're not bringing that.

[00:50:42] Speaker 03:
I'm just saying, like, we're bringing a mandatory statutory duty claim.

[00:50:45] Speaker 03:
It's covered by mandamus.

[00:50:46] Speaker 03:
I heard Mr. Buchholz to agree with our position that mandamus or other relief is available against them.

[00:50:51] Speaker 03:
Second, Judge Rossman, you're exactly correct.

[00:50:54] Speaker 03:
What the guidelines were was a complete revisionist history.

[00:50:58] Speaker 03:
It was to seize discretion that didn't exist before.

[00:51:01] Speaker 03:
The idea that they had always been considering and assessing risk is impossible to reconcile with a one-page form that asked for your name, address, and contact information.

[00:51:11] Speaker 03:
In 35 years, they never denied a single one.

[00:51:15] Speaker 03:
And the idea that novel banks are coming up for the first time in 2015 is preposterous.

[00:51:19] Speaker 03:
There were credit card banks, debit card banks, gift card banks, thrifts were novel at the time.

[00:51:24] Speaker 03:
The idea that novel banks appeared for the first time in 2015 is preposterous.

[00:51:28] Speaker 03:
With respect just to Judge Ebell's question about legislative history, there is abundant legislative history that says Congress understood just what we thought.

[00:51:37] Speaker 03:
Mr. Buchholz was very careful to say there's no legislative history where we expressly disclaimed our authority.

[00:51:43] Speaker 03:
fine, I'll concede that.

[00:51:44] Speaker 03:
But Chairman Volcker asked for open access.

[00:51:48] Speaker 03:
The Secretary of Treasury asked for universal access.

[00:51:51] Speaker 03:
The Comptroller of the Treasury asked for open access.

[00:51:54] Speaker 03:
The House report at page 20 says, and I quote, pricing principle two, opens access to Fed services to non-member banks.

[00:52:02] Speaker 03:
This bill will ensure that a basic level of services is available

[00:52:06] Speaker 03:
to all banks throughout the country on a non-discriminatory basis.

[00:52:10] Speaker 03:
So the idea that the legislative history was silent on this is not accurate.

[00:52:14] Speaker 03:
And indeed, the idea that they're promulgating that this was somehow an elephant in a mousehole is just, it denies history.

[00:52:23] Speaker 03:
The Monetary Control Act was a massive radical revision of the system.

[00:52:28] Speaker 03:
This was no mousehole.

[00:52:30] Speaker 03:
Right?

[00:52:31] Speaker 03:
Everybody understood there was a deal.

[00:52:32] Speaker 03:
The deal was everybody's subject to reserve requirements.

[00:52:36] Speaker 03:
In return, you get access to the basic systems that allow banks to compete and you get non-discriminatory pricing.

[00:52:44] Speaker 03:
Finally, substantively, they keep invoking the farmers case.

[00:52:48] Speaker 03:
Yes, when farmers was decided and 342 was there, the Fed and the Fed banks had discretion because Congress hadn't enacted 248C, which eliminated the discretion.

[00:52:59] Speaker 03:
The discretion you know is there is because 248C is not just a pricing principle.

[00:53:05] Speaker 03:
It says

[00:53:06] Speaker 03:
that shall be available, except that members shall be subject to any other terms, including a requirement of balances sufficient for clearing purposes.

[00:53:15] Speaker 03:
In other words, that provision only makes sense if Congress understood from the pricing principle that banks, real banks, in the real world would be getting access.

[00:53:25] Speaker 03:
That's how they understood it for 35 years.

[00:53:27] Speaker 03:
And in conclusion, Your Honor, if I could just make this last point, I heard Mr. Chadwick say, and I thought it was super telling,

[00:53:34] Speaker 03:
that in response to questions about crypto, that we will keep doing this until, quote, we and other agencies decide what is and is not legal.

[00:53:43] Speaker 03:
I respectfully submit, Your Honor, that's exactly what is going on here.

[00:53:47] Speaker 03:
It was going on in the Coinbase case that Judge Peebas addressed.

[00:53:50] Speaker 03:
It's the federal agencies stepping into a vacuum, finding new powers to agrep crypto that had never existed before.

[00:53:58] Speaker 03:
We urge the court to adopt Judge Bacharach's opinion.

[00:54:01] Speaker 03:
Thank you, counsel.

[00:54:02] Speaker 04:
We appreciate the arguments.

[00:54:06] Speaker 04:
Case needed a little extra time, so I hope the other counsel are patient with us.

[00:54:10] Speaker 04:
So counsel, your excuse, and we'll take the case under submission.