I've always read Section 248a to be a nondiscrimination principle, mirroring Section 4(Eighth) of the Federal Reserve Act. Nondiscrimination is limited in scope. The Fed can't discriminate because a bank is a nonmember, but can discriminate because it doesn't like the nonmember's business model. (It can also deny membership to any state-chartered bank with an unacceptable business model: Section 9.)
Any bank is free to select a private bank as correspondent. The only reason a master account is existential is that no private bank would view the applicant as an acceptable respondent. Is the Fed an obligatory correspondent to the damned?
I think an important point is that a private correspondent banking relationship is not equal to a master account - using a private bank as a correspondent introduces higher costs, delays, and counterparty risks. It erodes a lot of the value that the Wyoming SPDI charter offers. So there is a significant reason why a Fed master account, specifically, is important. Custodia has also used a correspondent bank – so it’s not entirely true that no private bank would maintain a relationship with them, though it does demonstrate the extent to which not having a master account leaves you at the whim of a partner bank.
As far as the broader question of 248a, I think the analogy of Fed membership is an imperfect one. The Fed has a good deal of discretion there to evaluate applications “under such rules and regulations as it may prescribe”. So it can deny an institution because it has a business model disfavored by the Fed. In contrast, Congress stipulates through 248a that master accounts “shall be available to nonmember depository institutions”. Prof. Julie A. Hill has an article ("From Cannabis to Crypto") that dives into the statutory language and concludes that this phrase should be read as leaving the Fed very little discretion to deny institutions it doesn’t like.
Additionally, state chartered banks can survive without being Federal Reserve System members. Being a member of the FRS is really something “extra”. In contrast, having access to a master account is essential. Custodia already went through a review and approval process from the Wyoming State Banking Board, and by denying it a master account the Fed is fundamentally threatening its ability to do business. In doing so I think that it usurps a lot of the chartering power of state banking authorities, in a way that is inconsistent with the dual-banking system (what’s the value of a state charter if you have to then convince the Fed to let you do business anyway?). So I don’t think it’s true that the Fed just can’t discriminate against non-members, I think Congress also intended it to respect the judgement of state chartering authorities as to whether a given institution should be allowed to do business.
I've always read Section 248a to be a nondiscrimination principle, mirroring Section 4(Eighth) of the Federal Reserve Act. Nondiscrimination is limited in scope. The Fed can't discriminate because a bank is a nonmember, but can discriminate because it doesn't like the nonmember's business model. (It can also deny membership to any state-chartered bank with an unacceptable business model: Section 9.)
Any bank is free to select a private bank as correspondent. The only reason a master account is existential is that no private bank would view the applicant as an acceptable respondent. Is the Fed an obligatory correspondent to the damned?
I think an important point is that a private correspondent banking relationship is not equal to a master account - using a private bank as a correspondent introduces higher costs, delays, and counterparty risks. It erodes a lot of the value that the Wyoming SPDI charter offers. So there is a significant reason why a Fed master account, specifically, is important. Custodia has also used a correspondent bank – so it’s not entirely true that no private bank would maintain a relationship with them, though it does demonstrate the extent to which not having a master account leaves you at the whim of a partner bank.
As far as the broader question of 248a, I think the analogy of Fed membership is an imperfect one. The Fed has a good deal of discretion there to evaluate applications “under such rules and regulations as it may prescribe”. So it can deny an institution because it has a business model disfavored by the Fed. In contrast, Congress stipulates through 248a that master accounts “shall be available to nonmember depository institutions”. Prof. Julie A. Hill has an article ("From Cannabis to Crypto") that dives into the statutory language and concludes that this phrase should be read as leaving the Fed very little discretion to deny institutions it doesn’t like.
Additionally, state chartered banks can survive without being Federal Reserve System members. Being a member of the FRS is really something “extra”. In contrast, having access to a master account is essential. Custodia already went through a review and approval process from the Wyoming State Banking Board, and by denying it a master account the Fed is fundamentally threatening its ability to do business. In doing so I think that it usurps a lot of the chartering power of state banking authorities, in a way that is inconsistent with the dual-banking system (what’s the value of a state charter if you have to then convince the Fed to let you do business anyway?). So I don’t think it’s true that the Fed just can’t discriminate against non-members, I think Congress also intended it to respect the judgement of state chartering authorities as to whether a given institution should be allowed to do business.