Custodia Bank Loses Final Court Appeal Over Federal Reserve Master Account

A US federal appeals court has rejected Custodia Bank’s final attempt to challenge the Federal Reserve’s authority over granting master accounts, bringing an end to the crypto-focused bank’s five-year legal fight for direct access to the central bank’s payment infrastructure.

Key Takeaways:

• A US appeals court refused to hear Custodia Bank’s final appeal, ending its five-year fight for a Federal Reserve master account.
• Courts ruled the Federal Reserve has discretion to decide which institutions can access its payment system.
• The case comes as more fintech and crypto firms pursue US bank charters and direct access to the banking system.

The US Court of Appeals for the Tenth Circuit said in a filing on Friday that it would not hear Custodia’s final appeal in a 7–3 vote, effectively closing the case and reinforcing the Federal Reserve’s discretion over who can access its banking services.

Custodia Argued Fed Must Grant Master Account to State-Chartered Banks

Custodia first applied for a Federal Reserve master account in October 2020.

Such accounts allow financial institutions to hold reserves directly at the central bank and connect to its payment rails, enabling banks to settle transactions without relying on intermediary institutions.

After its application was denied, Custodia took the dispute to court, arguing that the Monetary Control Act requires the Fed to provide services to state-chartered banks and therefore entitles it to a master account.

The bank maintained that access to the central bank’s payment system was critical to its operations as a digital asset-focused institution.

However, courts reviewing the case repeatedly sided with the Federal Reserve, concluding that the central bank retains discretion when deciding whether to grant master accounts.

The decision arrives shortly after crypto exchange Kraken secured a limited form of direct access to the Federal Reserve system.

On March 4, Kraken became the first crypto platform to obtain a master account from the Federal Reserve Bank of Kansas City.

Kraken’s account allows the firm to connect to the Fedwire payments network, though it does not grant the full suite of services typically available to traditional banks.

The development sparked speculation that US regulators might consider issuing “skinny” or restricted master accounts to crypto firms seeking closer integration with the banking system.

Despite the ruling against Custodia, one judge offered a forceful dissent. Judge Timothy Tymkovich argued that access to a master account is “indispensable” for banks and said denying one is “akin to a death sentence.”

Tymkovich noted that shortly after Custodia submitted its application in 2020, the Federal Reserve initially indicated that the proposal had “no showstoppers.”

He added that he disagreed with the majority’s view that reserve banks have broad discretion over such applications.

Revolut Files Second Bid for US Bank Charter to Expand Nationwide

Fintech company Revolut has filed a new application for a US national bank charter, marking its second attempt to obtain a banking license in the country.

The London-based firm submitted the application to the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to establish “Revolut Bank US, N.A.”

If approved, the charter would allow Revolut to operate under a single federal regulatory framework across all 50 US states.

Revolut’s move comes as more fintech and crypto firms seek US bank charters through the OCC.

Recent applicants for national bank charters include Nubank, Crypto.com, Circle, Ripple, BitGo, Fidelity Digital Assets and Paxos, signaling growing interest among fintech and digital asset firms in gaining direct access to the US banking system.

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