Fed Wins Court Battle Over Crypto Bank Master Accounts

The Tenth Circuit Court of Appeals in Denver has sided with the Federal Reserve in a landmark ruling that affirms the central bank’s discretion to deny master account access to crypto-focused financial institutions. In a 2-1 decision, the three-judge panel rejected Custodia Bank’s argument that the Fed was obligated to grant master accounts to all technically eligible banks. The majority opinion, written by Judge David Ebel—a Ronald Reagan appointee—concluded that ‘the plain language of the relevant statutes grants Federal Reserve Banks discretion to reject master account access requests from eligible entities.’ This ruling represents a substantial legal victory for the Federal Reserve and a significant setback for crypto banks seeking full integration into the U.S. banking system.

The case centered on the Federal Reserve Bank of Kansas City’s determination that Custodia’s crypto-focused business model ‘introduced undue risk into the U.S. banking system.’ Master accounts, which are possessed by all federally chartered banks, allow direct access to the Fed’s payment services and are considered essential for financial institutions seeking to operate nationally. The court’s affirmation that the Fed can deny these privileges based on risk assessment reinforces the central bank’s authority to safeguard financial stability, even when dealing with technically eligible institutions like Custodia, which operates under a special-purpose depository institution charter granted by Wyoming.

The 2-1 split decision revealed significant judicial disagreement over the interpretation of federal banking statutes. The sole dissenting judge, Timothy Tymkovich—appointed by George W. Bush—argued that relevant statute language stating the Fed’s payment services ‘shall’ be available to eligible non-member banks should compel the Fed to grant master accounts to all qualified institutions, including Custodia. Tymkovich wrote in his dissent: ‘This case comes clothed in 21st Century terms: cryptocurrency, digital assets, instant wire transfers, and master accounts. But there is nothing new about this issue,’ suggesting the legal principles at stake transcend the novel context of digital assets.

Custodia founder Caitlin Long referred to the company’s statement acknowledging the loss while highlighting the significance of the dissent. ‘While we were hoping for a win at the Tenth Circuit today, we received the next best thing—a strong dissent,’ the bank stated. Custodia indicated it may seek a rehearing by the Tenth Circuit, arguing the decision should be considered split because of another ruling made by a different judge on a similar matter in the same jurisdiction. This potential legal strategy underscores the ongoing nature of the battle over crypto bank access to Federal Reserve services.

The ruling maintains the Federal Reserve’s unbroken record of zero master account approvals for crypto-focused banks, reinforcing the central bank’s cautious approach to digital assets under Chair Jerome Powell. This consistent regulatory stance has created significant operational limitations for crypto banks, which cannot access direct Fed payment services critical for national operations. The decision effectively empowers Federal Reserve banks to continue denying master accounts to institutions whose business models they deem to pose risks to financial stability, regardless of their technical eligibility under state or federal charters.

However, potential policy shifts may emerge outside the courtroom. The article notes that ‘once Fed chair Jerome Powell, long a target of President Donald Trump’s ire, leaves office, Fed governors more closely aligned with the White House are expected to exert their control of the central bank to undo its current crypto-skeptical policies.’ This suggests that leadership changes at the Federal Reserve could fundamentally alter the regulatory landscape for crypto banks. Additionally, Fed Governor Christopher Waller—one of the top candidates to succeed Powell—has recently proposed offering specialized ‘skinny’ master accounts to crypto- and innovation-focused banks on an accelerated timeline, indicating potential evolution in the Fed’s approach to digital asset integration.

The court’s decision represents a pivotal moment in the ongoing tension between innovative financial technologies and traditional regulatory frameworks. While the ruling solidifies the Federal Reserve’s current authority to limit crypto bank access to critical banking infrastructure, the strong judicial dissent and potential administrative policy changes suggest this battle is far from over. The outcome will significantly influence how—and whether—crypto-focused institutions can achieve full integration into the United States banking system in the coming years.