Custodia Bank Loses Final Appeal in Fight for Federal Reserve Master Account
A U.S. federal appeals court has rejected the final attempt by Custodia Bank to challenge the authority of the Federal Reserve over granting master accounts.
The decision effectively ends the crypto-focused bank’s five-year legal battle to gain direct access to the central bank’s payment infrastructure.
Key Takeaways
A U.S. appeals court declined to hear Custodia Bank’s final appeal, closing its long-running case over a Federal Reserve master account.
The ruling reinforces that the Federal Reserve has discretion to decide which institutions can access its payment system.
The case highlights growing interest from fintech and crypto companies seeking U.S. bank charters and closer integration with the banking system.
Court Declines Final Appeal
The United States Court of Appeals for the Tenth Circuit ruled in a 7–3 vote that it would not hear Custodia’s final appeal, effectively ending the case and confirming that the Federal Reserve can determine which institutions receive access to its services.
Custodia first applied for a Federal Reserve master account in October 2020.
These accounts allow financial institutions to hold reserves directly at the central bank and connect to its payment rails, enabling them to settle transactions without relying on intermediary banks.
After the application was denied, Custodia filed a lawsuit arguing that the Monetary Control Act requires the Federal Reserve to provide banking services to state-chartered institutions.
The bank maintained that access to the Fed’s payment network was essential for operating a digital-asset-focused banking model.
However, courts reviewing the dispute consistently sided with the Federal Reserve, concluding that the central bank retains broad discretion when deciding whether to grant master accounts.
Crypto Firms Still Seeking Access to the Banking System
The ruling comes at a time when crypto and fintech companies are increasingly pursuing direct access to the U.S. banking system.
Earlier this month, crypto exchange Kraken became the first digital asset platform to obtain a limited form of master account access from the Federal Reserve Bank of Kansas City.
The account allows Kraken to connect to the Fedwire payments network, although it does not include the full range of services typically provided to traditional banks.
The development has fueled speculation that regulators may begin issuing restricted or “skinny” master accounts to crypto firms looking for closer ties to the financial system.
A Strong Dissent From One Judge
Despite the majority ruling, one judge strongly disagreed with the decision.
Judge Timothy Tymkovich argued in his dissent that access to a master account is essential for banks, describing the denial of such access as “akin to a death sentence.”
He noted that when Custodia first applied in 2020, the Federal Reserve initially indicated the proposal had “no showstoppers.”
Tymkovich also challenged the majority’s view that reserve banks have broad discretion over these applications.
Fintech Firms Continue Seeking U.S. Banking Licenses
Meanwhile, interest in U.S. banking licenses continues to grow among fintech companies.
Digital banking firm Revolut has submitted a new application for a national bank charter, marking its second attempt to secure a license in the United States.
The London-based company filed its application with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to establish Revolut Bank US, N.A.
If approved, the charter would allow the company to operate under a single federal regulatory framework across all 50 states.
Revolut’s move highlights a broader trend: more fintech and crypto firms are pursuing U.S. bank charters and direct access to the financial system as digital assets become increasingly integrated with traditional finance.
