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In a 2-1 ruling announced today, the Tenth Circuit upheld the rejection of a Federal Reserve master account for Custodia Bank, the Wyoming-chartered Special Purpose Depository Institution (SPDI) that has emerged as a pivotal case for crypto-focused banking. The panel affirmed the district court’s decision in totality and granted Reserve Banks considerable (and possibly unreviewable, according to the dissent) authority over access.
Master accounts serve as the keys to the fiat realm. They represent the ledger entries enabling institutions to clear and settle transactions directly with the Fed; lacking one, a “bank” is essentially just a vault reliant on unpredictable intermediaries and third-party systems. This practical bottleneck (which has previously been exploited by regulators) bestows significant policy weight to any decision regarding access.
Wyoming established SPDIs to align traditional (but fully collateralized) dollar banking frameworks with distinct digital asset offerings. Custodia, prohibited from issuing loans and obligated to ensure dollar deposits are 100% supported by high-quality liquid assets, sought a master account in October 2020. Initial indications from the Kansas City Fed were optimistic (“no showstoppers”), yet after the Board completed its 2022 access Guidelines, FRBKC classified Custodia as a Tier 3 applicant, the category that “typically undergoes the most stringent level of scrutiny,” and officially denied the account in January 2023. The Board, consulted in advance, communicated via email that it had “no reservations” concerning FRBKC’s denial notification.
The Majority Opinion
Authored for the court, Judge Ebel dismissed Custodia’s statutory and administrative arguments, effectively granting the Federal Reserve wide, and possibly unlimited, discretion on this matter. By interpreting the Federal Reserve Act’s § 342 (“may receive deposits”) in conjunction with the Monetary Control Act’s § 248a, the panel determined that decisions regarding access remain discretionary with the Reserve Banks; the phrase § 248a(c)(2)’s “shall be available” pertains to pricing and equality for the services the Board prices, but does not compel the Banks to establish an account for every qualifying institution. Additionally, the court regarded the 2022 “Toomey Amendment” (§ 248c) as transparency-focused, not a directive to approve applications.
On the APA front, the panel held that the Board’s “no-concerns” email did not constitute a final agency action, as the conclusive decision lay with FRBKC under the Guidelines, thus bearing no independent legal impact. This finding also weakened theories directed at the Board itself. Finally, Judge Ebel dismissed Custodia’s constitutional claim concerning the Presidential appointment of subordinate officers on a (in my estimation) weak technicality: that the claim was not adequately preserved.
The Dissent
Judge Tymkovich dissented, interpreting § 248a(c)(2)’s “shall be available” as a substantive guarantee of access, rather than just standard pricing language. In his perspective, when Congress opened the Fed’s services to “nonmember depository institutions,” it rendered master-account access an obligation that is enforceable, if necessary, through traditional means such as mandamus, instead of a sweeping veto held by unappointed Reserve Bank officials (a structure he warns could lead to constitutional complications). He also underlined that courts in related master-account litigation (e.g., Banco San Juan) acknowledge the importance of § 342 but do not dismiss the MCA’s “shall” mandate.
We are confined by the ordinary meaning of the statute and, in my view, shall signifies shall. Section § 248a(c)(2) requires access to the Fed’s payment services for all nonmember depository institutions. By refusing Custodia a master account, the Kansas City Fed has unlawfully obstructed its access to those essential services. That, it cannot do.
The Future Path
We must observe the outcome in PayServices (Ninth Circuit). Should that court rule differently, a circuit split would significantly elevate the likelihood of Supreme Court review. It’s worth noting that Judge Tymkovich was also involved in that case. However, for the time being, the responsibility rests squarely on Custodia.
Today’s decision solidifies the discretion of Reserve Banks at the access threshold; the dissent, in contrast, interprets the MCA as Congress’s commitment to open access for state-chartered, deposit-taking institutions similar to Custodia’s SPDI. The implications, for constitutional frameworks, state innovation, and Bitcoin-adjacent banking, couldn’t be more evident.
Disclosure: I composed an amicus brief on behalf of Wyoming’s Secretary of State supporting Custodia.
This is a guest post by Colin Crossman. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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