Federal Appeals Court Rejects Crypto-bank’s Bid for Fed Master Account

Writing for the majority, Judge David Ebel held that nothing in federal law requires the Fed to approve every master account request simply because the applicant meets baseline eligibility standards. The panel agreed with the Kansas City Federal Reserve Bank’s conclusion that Custodia’s crypto-centric business model posed heightened systemic risks, reinforcing the central bank’s authority to withhold direct access to its payments infrastructure.

“We conclude the plain language of the relevant statutes grants Federal Reserve Banks discretion to reject master account access requests from eligible entities,” Ebel wrote. “Therefore, we reject Custodia’s attempt to impair the Fed’s ability to safeguard our nation’s financial system through the exercise of discretion to reject master account access.”

The ruling underscores the continued legal and regulatory uncertainty facing digital asset firms seeking parity with traditional banks. Master accounts — held by all federally chartered depository institutions — enable institutions to send payments directly through the Fed’s system, eliminating the need for intermediary banks. While the accounts have long been routine for conventional banks, no crypto-forward institution has been permitted to obtain one.

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The decision arrives as the Fed faces mounting pressure to clarify its framework for handling crypto firms. Earlier this month, Federal Reserve Governor Christopher Waller confirmed that the central bank is exploring a new class of “payment-only” or “skinny” master accounts that would grant limited access to Fed payment rails while restricting other benefits, such as interest-bearing balances or overdraft privileges

The proposal — aimed at firms “engaged in substantial payments activities” but lacking full-service banking functions — reflects the Fed’s recognition that innovation-focused institutions are being forced to rely on third-party correspondent banks simply to process transactions. Still, as Waller emphasized, eligibility questions remain unresolved, especially for state-chartered trust companies like Custodia, which may not meet core deposit-taking requirements.

Custodia took some solace from Judge Timothy Tymkovich’s dissent in the appeals court ruling. “While we were hoping for a win at the Tenth Circuit today we got the next best thing—a strong dissent,” the bank said in a statement posted on X. “It raised serious Constitutional questions about the Federal Reserve and was written by a judge sitting by designation on a panel in a similar case in the Ninth Circuit.”

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Judge Tymkovich said the statutory language stating Fed services “shall” be available to eligible non-member banks leaves the central bank no discretion to deny access. But the majority rejected that interpretation, siding with the Fed’s broader supervisory mandate.

Custodia, founded by longtime crypto advocate Caitlin Long, said it may seek further review from the Supreme Court, touting the dissent as evidence of a fractured legal landscape.

For now, the Tenth Circuit’s ruling cements the status quo: full-access master accounts remain out of reach for crypto-focused banks unless and until the Fed revises its policy or Congress intervenes. With Fed Chair Jerome Powell expected to step down next year and potential successors signaling greater openness to digital asset integration, industry advocates will be watching closely to see whether policy change arrives through the courts.