A U.S. federal appeals court has rejected Custodian Bank’s latest attempt to challenge the Federal Reserve’s authority to grant master accounts, ending the crypto-focused bank’s five-year legal battle for direct access to the central bank’s payments infrastructure.
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A US appeals court has refused to hear Custodia Bank’s latest appeal, ending its five-year fight for the Federal Reserve’s master account.
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Courts have ruled that the Federal Reserve has the authority to decide which institutions can access its payment system.
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The case comes as other fintech and crypto companies follow US bank charters and gain direct access to the banking system.
The U.S. Court of Appeals for the 10th Circuit said in a filing Friday that it would not hear Custodia’s final appeal in a 7-3 vote, effectively closing the case and strengthening the Federal Reserve’s discretion over who can access its banking services.
Custodia first applied for a Federal Reserve Master Account in October 2020.
Such accounts allow financial institutions to hold deposits directly with the central bank and connect to payment rails, enabling banks to settle transactions without relying on intermediary institutions.
After its application was denied, the Custodia took the dispute to court, arguing that the Monetary Control Act required the Fed to provide services to state-chartered banks and therefore it had the right to a master account.
The bank maintained that access to the central bank’s payment system is critical to its operations as a digital asset-focused institution.
However, courts have repeatedly reviewed cases with the Federal Reserve, concluding that the central bank retains discretion when deciding whether to grant master accounts.
The decision comes shortly after crypto exchange Kraken secured a limited form of direct access to the Federal Reserve System.
On March 4, Kraken became the first crypto platform to receive a master account from the Federal Reserve Bank of Kansas City.
A Kraken account allows the company to connect to the Fedwire payments network, though it doesn’t offer the full suite of services typically available to traditional banks.
The development has sparked speculation that US regulators may consider issuing “skinny” or limited master accounts to crypto companies that seek closer integration with the banking system.
Despite the order against Custodia, a judge filed a strong dissent. Judge Timothy Tymkovich argued that access to a master account is “mandatory” for banks and said denying someone “is tantamount to a death sentence.”
