Custodia Bank, a Wyoming-chartered crypto-focused bank, has taken its legal fight with the US Federal Reserve to the next level. After years of pushback, the bank is now asking the full Tenth Circuit Court of Appeals to review the Fed’s refusal to grant it a master account.
The case has become a flashpoint for a much larger debate over who truly controls access to the US financial system. At its core, the dispute questions whether federal regulators can effectively override state-approved banks without clear legal limits.
Why a Fed Master Account Is Critical
A Federal Reserve master account is not optional for banks. It provides access to core payment systems such as wire transfers and the Automated Clearing House (ACH). Without it, a bank cannot operate normally, regardless of its legal status.
Custodia argues that it meets all eligibility requirements under federal law as a nonmember depository institution. Yet the Kansas City Federal Reserve denied its application, leaving the bank operationally frozen. Custodia says this makes Wyoming’s decision to charter the bank meaningless in practice.
State Innovation vs Federal Control
Wyoming introduced its Special Purpose Depository Institution (SPDI) framework in 2020 to attract digital asset firms while minimizing risk. The model requires full reserve backing and bans traditional lending, creating one of the strictest crypto banking regimes in the US.
Custodia claims the Fed’s decision undermines this framework and sets a dangerous precedent. If federal reserve banks can deny access at will, state-level innovation in banking becomes largely symbolic.
Constitutional Red Flags Raised
Beyond state authority, Custodia’s petition raises constitutional concerns. The bank argues that granting regional Federal Reserve Bank presidents unchecked discretion turns them into powerful federal actors without proper constitutional appointment. Because these officials are selected through a hybrid public-private process, Custodia says this level of authority may violate the Appointments Clause, raising serious questions about accountability and oversight.
Judges Split as Pressure Builds
The issue has already divided judges within the Tenth Circuit. A dissenting opinion stressed that the Monetary Control Act clearly states that Fed services “shall be available” to eligible institutions. Allowing unlimited discretion, the dissent warned, creates legal and constitutional problems. This split has strengthened Custodia’s case for a full court review.
Notably, the recent findings from the Office of the Comptroller of the Currency showed that major US banks imposed inappropriate restrictions on lawful businesses, including crypto firms, between 2020 and 2023. The issue gained political traction after President Trump signed an executive order aimed at stopping banks from denying services solely over crypto activity.
Crypto Industry Reaction
The crypto community has reacted sharply, arguing that Custodia’s case exposes why trust in traditional banking rails is fading. Many see the denial, despite strict safeguards, as proof that innovation can be blocked by opaque federal discretion.
As a result, industry voices say the case strengthens the push toward parallel, blockchain-based settlement systems that don’t rely on centralized gatekeepers.
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FAQs
A Fed master account lets banks access payment systems like ACH and wire transfers. Without it, a bank can’t function in the US financial system.
The Fed cited policy and risk concerns, even though Custodia says it meets legal requirements. The denial highlights regulator discretion over bank access.
Many see the denial as proof that traditional finance can block innovation, fueling a shift toward decentralized settlement systems outside centralized banking control.
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