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.
A Six-Year Quest for a Master Account
Custodia Bank applied for a master account in 2020. The Wyoming-chartered bank focuses on services connected to digital asset companies. A master account allows banks to access Federal Reserve payment systems directly, enabling transaction settlement without intermediary banks. However, the Federal Reserve rejected the application in 2023, citing concerns tied to the bank's crypto-focused business model.
Custodia challenged the decision in court, arguing that federal law requires the central bank to grant accounts to licensed institutions. The three-judge panel ruled in October 2024 that regional Reserve Banks retain discretion on granting master accounts, a holding the full circuit now leaves intact.
Dissenting Judges Warn of Unchecked Power
Despite the majority ruling, several judges disagreed. Judges Timothy Tymkovich and Allison Eid joined the dissenting opinion. Tymkovich wrote that the decision grants Reserve Banks “unreviewable discretion” over account access, arguing the approach conflicts with the Monetary Control Act of 1980. The dissent also raised constitutional concerns about the balance between federal regulators and state-chartered banks.
Though Custodia's legal challenge ended, discussions around master accounts continue. The Federal Reserve Bank of Kansas City recently granted a special limited account to crypto exchange Kraken, providing several payment system features. Meanwhile, the Federal Reserve Board is developing a broader policy framework, 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.