On March 13, the Tenth Circuit Court of Appeals refused to reconsider Custodia Bank's challenge to the Federal Reserve's denial of a master account. This decision further solidifies the central bank's authority over institutional access to its payment system.
The court rejected Custodia's petition for a rehearing, upholding a previous ruling in favor of the Federal Reserve and the Federal Reserve Bank of Kansas City.
Custodia initiated legal action in October 2020 after its application for a master account with the Kansas City Fed was denied. Master accounts allow banks to hold deposits directly with the Federal Reserve and access essential services like payment clearing and Fedwire transfers, without needing intermediary banks.
Custodia, a Wyoming-chartered entity, argued that federal law requires Reserve Banks to provide payment services to eligible depository institutions, asserting that a master account is essential for such access.
Two dissenting judges believed the case raised significant legal and constitutional questions. Judge Timothy Tymkovich questioned whether Congress had granted Federal Reserve Banks unlimited discretion to deny state-chartered banks' master account applications. He warned that without a master account, a bank cannot operate in the modern banking system, suggesting that unchecked denial power could give federal authorities an effective veto over state-chartered banks.
This ruling follows Kraken's banking arm, Payward Financial, securing a master account from the Federal Reserve Bank of Kansas City on March 4. This approval drew criticism from U.S. banking groups, who claimed the Fed acted prematurely. While Custodia sought access through the courts, Kraken obtained it via the Federal Reserve's supervisory process, highlighting different paths for integrating digital assets into traditional financial sys