Crypto Bank Custodia Suffers Another Court Rejection in Fed Master Account Pursuit

Crypto bank Custodia, founded by Caitlin Long, still cannot get access to the Federal Reserve's payment rails after an appeals court ruled against its years-long effort to get a so-called "master account" with the U.S. central bank.

The 10th Circuit Court of Appeals ruled Friday that the Wyoming special purpose depository institution could not force the Fed to grant it master account access, affirming a lower court ruling against Custodia last year.

"We conclude the plain language of the relevant statutes grants Federal Reserve Banks discretion to reject master account access requests from eligible entities and, 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 said.

Custodia sued the Federal Reserve in 2022, initially arguing the Fed was taking too long to evaluate its application for a master account and later amending the suit after the Fed rejected its push for an account. Custodia argued that the Fed did not have the legal ability to reject an application for a master account.

A federal judge ruled against Custodia last year, ruling that the Fed was not required to grant every eligible depository institution a master account. The company appealed shortly after, and a three-judge panel heard arguments from the parties this past January.

In a statement posted to X, Custodia said, "while we were hoping for a win at the [10th] Circuit today, we received the next best thing — a strong dissent."

Throughout the process, Custodia has argued that the language of the laws governing master accounts means the Fed has no choice but to grant account access to any eligible depository institution. Multiple judges have now disagreed with that interpretation.

Friday's ruling pointed to both governing legislation around the Fed as well as an amendment by former Senator Pat Toomey (R-Pa.) that all say the Fed has discretion in these matters, the opinion penned by Judge David Ebel said.

Custodia had also tried to argue that the Federal Reserve Bank of Kansas City, which would be its supervisory entity, had illegally coordinated with the overall Federal Reserve Board of Governors and the administration of former President Joe Biden to reject its application. The district court and appeals court both said they did not find those claims compelling.

"Custodia points to nothing in the record that would allow us to conclude that it was not FRBKC who made the final decision on Custodia’s master account application in this case," the filing said.

"Custodia has an option to petition for a rehearing by the [10th] Circuit, and we are actively considering that," the company said in its statement.

While the Federal Reserve has not formally made any moves toward allowing crypto-friendly depository institutions access to a master account directly, Fed Governor Chris Waller suggested in a recent speech that the central bank could devise a "skinny master account" that crypto firms and similar types of companies could tap for access to the Fed's payment rails, without opening the Fed up to broader systemic risks.

Read more: Gov. Waller: U.S. Fed to 'Embrace Disruption,' Pitches 'Skinny' Master Account Idea