- Tenth Circuit rules the Fed can deny Custodia’s master account to protect financial stability.
- Judge Ebel affirms Fed discretion, while Judge Tymkovich dissents, citing service duty to eligible banks.
- Custodia plans further action as the Fed considers “skinny master accounts” for fintech and crypto firms.
In a closely watched ruling, the Tenth Circuit Court of Appeals decided that the Federal Reserve holds authority to deny Custodia Bank’s request for a master account. In a 2–1 decision, the court sided with the Fed, rejecting Custodia’s attempt to compel direct access to the U.S. payment network. The judgment affirms that eligibility alone does not guarantee access to core Federal Reserve services.
Judge Cites Fed’s Authority to Protect Financial Stability
Judge David Ebel, writing for the majority, stated that federal law allows the Fed to reject master account applications from eligible institutions if necessary to protect financial stability. “We reject Custodia’s attempt to impair the Fed’s ability to safeguard our nation’s financial system through the exercise of discretion,” Ebel wrote.
Custodia operates under Wyoming’s Special Purpose Depository Institution framework, allowing it to hold crypto assets. The Federal Reserve Bank of Kansas City previously ruled that Custodia’s crypto-based business model created “undue risk” to the financial system.
The court concluded that while Custodia is eligible, eligibility does not mean entitlement. Judge Timothy Tymkovich dissented, arguing that the Fed’s statutes require it to serve all eligible non-member banks. He noted the dispute involves modern terms such as digital assets and instant transfers but remains grounded in longstanding legal principles.
Custodia’s Response and Fed’s Policy Outlook
Custodia called the outcome “disappointing” but emphasized Tymkovich’s dissent as validation. “We were hoping for a win at the Tenth Circuit today, but we received the next best thing, a strong dissent,” the bank said, adding it may seek a rehearing.
Currently, no crypto-focused financial institution holds a Fed master account. However, Fed Governor Christopher Waller recently proposed “skinny master accounts” for fintech and stablecoin issuers.
These limited-access accounts would connect firms directly to Fed payment rails but include strict caps, no interest, and no overdraft privileges. Waller said the approach aims to balance financial safety with innovation, indicating gradual regulatory evolution within the payments system.
