- U.S. Tenth Circuit rejected Custodia Bank’s rehearing request, upholding Fed discretion over master account access.
- Custodia sought a Fed master account since 2020 to serve crypto firms but regulators denied the application in 2023.
- Dissenting judges warned the ruling grants broad, potentially unreviewable authority to Reserve Banks.
The U.S. Court of Appeals for the Tenth Circuit rejected Custodia Bank’s request for a full court rehearing in its dispute with the Federal Reserve. The decision, issued March 13, upheld an earlier ruling that Reserve Banks may decide whether institutions receive master accounts. The court voted 7–3 against rehearing the case, ending Custodia’s latest legal effort.
Court Upholds Federal Reserve Authority
The ruling leaves in place an October decision from a three-judge panel. That earlier opinion concluded that regional Federal Reserve banks retain discretion over granting master accounts. A master account allows banks to access Federal Reserve payment systems directly.
Institutions with such accounts can settle transactions without relying on intermediary banks. Custodia Bank applied for a master account in 2020. The Wyoming-chartered bank focuses on services connected to digital asset companies.
However, the Federal Reserve rejected the application in 2023. Regulators cited concerns tied to the bank’s crypto-focused business model. Custodia then challenged the decision in court. The bank argued federal law requires the central bank to grant accounts to licensed institutions.
Dissenting Judges Warn of Broad Discretion
Despite the majority ruling, several judges disagreed with the outcome. Judges Timothy Tymkovich and Allison Eid joined the dissenting opinion. Tymkovich wrote that the decision grants Reserve Banks unreviewable discretion over account access. He argued the approach conflicts with the Monetary Control Act of 1980.
The dissent also raised constitutional concerns about the decision. Tymkovich stated the ruling could affect the balance between federal regulators and state-chartered banks. However, the majority declined to reconsider the earlier interpretation. As a result, the October ruling remains the controlling decision.
Access Debate Continues Across Fed System
Although Custodia’s legal challenge ended, discussions around master accounts continue. Some Federal Reserve institutions have begun exploring limited access structures.
For example, the Federal Reserve Bank of Kansas City recently granted a special limited account to the crypto exchange Kraken. The account provides several payment system features.
Meanwhile, the Federal Reserve Board is developing a broader policy framework. Officials are considering “skinny” master accounts designed for specialized institutions.
According to sources familiar with the process, the policy remains in early development. Custodia representatives did not immediately comment on the latest court decision.