Custodia Bank Loses Fed Master Account Battle – But the Fight Isn’t Over

A federal appeals court has delivered a significant defeat to Custodia Bank, a Wyoming-based crypto lender, ruling that the Federal Reserve has broad discretion to deny banks direct access to the U.S. payment system. The U.S. Court of Appeals for the 10th Circuit voted 7-3 to deny Custodia Bank a rehearing, effectively ending its five-year legal battle to obtain a master account with the Federal Reserve. This decision upholds a previous ruling from October 2025, which stated the Fed is not obligated to grant access to all eligible banks and can deny applications with minimal explanation.

The Master Account Dispute

Custodia Bank initially applied for a master account in October 2020. These accounts, held at Federal Reserve Banks, are crucial for direct access to the U.S. payment infrastructure, enabling seamless wire transfers and interbank settlements. Without a master account, banks must rely on partner institutions, increasing costs and operational friction. The Kansas City Fed rejected Custodia’s application in January 2023, citing the bank's substantial exposure to crypto assets. The recent appeals court ruling confirms this rejection and the Fed's right to make such decisions.

Dissenting Opinions and Constitutional Concerns

The ruling was not unanimous, with Judge Timothy Tymkovich leading a dissent joined by two other judges. The dissenting opinion argued that denying a master account effectively serves as a "death sentence" for a bank, making operations nearly impossible. Judge Tymkovich warned that the majority decision grants unelected Federal Reserve officials excessive power to veto state-chartered banks, undermining the U.S. dual banking system. This dissent raises potential constitutional questions regarding administrative overreach that could be considered by the Supreme Court.

The Kraken Precedent and Evolving Fed Policy

Adding complexity to the situation, just nine days before Custodia's case was effectively closed, the same Kansas City Fed granted Kraken Financial, another Wyoming-chartered crypto firm, a limited master account. This marked the first time a crypto-native company received such access. However, Kraken's account is restricted, providing access only to the Fedwire payment network without features like emergency lending or interest on reserves, and is structured as a one-year pilot. This development follows Fed Governor Christopher Waller's efforts to create a