In a 2-1 decision issued today, the Tenth Circuit upheld the Federal Reserve’s rejection of a master account for Custodia Bank, the Wyoming-chartered Special Purpose Depository Institution (SPDI) that has become the test case for crypto-native banking. The panel affirmed the district court across the board, leaving the Reserve Banks with broad (and potentially unmanageable, in the dissent’s words) discretion over access.
Master accounts are the keys to the fiat realm. They are the ledger entries that let institutions clear and settle directly with the Fed; without a “bank” is functionally just a box that relies on fickle middlemen and third-party skins. The practical choke point (which has been abused by regulators before) gives any discretionary power over access extraordinary political significance.
Wyoming created SPDIs to pair traditional (but fully reserved) dollar bank rails with segregated digital asset services. Custodia, barred from making loans and required to hold dollar deposits 100% backed by high-quality liquid assets, applied for a master account in October 2020. Early signals from the Kansas City Fed were positive (“no showstoppers”), but after the board finalized its guidelines for 2022 access, FRBKC deemed Custodia “generally received the bucket applicant”[s] the most stringent level of review,” and formally denied the account in January 2023. The board, consulted in advance, emailed that it had “no concerns” with FRBKC communicating a denial.
The majority opinion
Writing for the court, Judge Ebel rejected Custodia’s statutory and administrative claims, essentially giving the Federal Reserve broad and potentially unlimited discretion on this point. Reading Federal Reserve Act § 342 (“may receive deposits”) together with Monetary Control Act § 248a, the panel concluded that access decisions remain discretionary with the reserve banks; § 248a(c)(2)’s “shall be available” language regarding pricing and parity for services that the Board rates does not compel banks to open an account for all eligible institutions. The court also treated the “Toomey Amendment” of 2022 (§ 248c) as transparency-oriented, not a mandate to approve applications.
On the APA front, the panel held the board’s “no concern” email, which was not a final agency action, the final decision belonged to the FRBKC under the guidelines, so it had no independent legal effect. It also undercuts theories aimed at the board itself. Finally, Judge Ebel dispenses with Custodia’s constitutional argument related to the presidential appointment of subordinate officers on a (in my view) flimsy technicality: that the argument was not properly preserved.
The dissent
Judge Tymkovich dissented, reading § 248a(c)(2)’s “shall be available” as a substantial access guarantee, not merely a pricing one. In his view, when Congress opened the Fed’s services to “non-member depository institutions,” it made master account access a duty that could be enforced, if necessary, through traditional tools like mandamus, rather than a roving veto submitted to non-appointed Reserve Bank officers (a framework that he warns invites constitutional headaches). He also emphasized that courts in related master-account lawsuits (eg Banco San Juan) recognize the centrality of § 342, but do not remove the MCA’s “shall” command.
We are bound by the plain language of the statute, and in my opinion shall means shall. Section § 248a(c)(2) provides access to the Fed’s payment services for all nonmember depository institutions. By denying Custodia a master account, the Kansas City Fed unlawfully denied it access to the services essential to its business. It cannot do that.
The way forward
We have to see the result Payment Services (Ninth Circuit). If this court goes the other way, a circuit split would significantly increase the odds of Supreme Court review. It is interesting to note that Judge Tymkovich was also in that case. But for now, the ball is firmly in Custodia’s court.
Today’s decision cements the Reserve Bank’s discretion at the gateway; the dissent, by contrast, reads the MCA as Congress’ promise of open access for state-chartered, deposit-taking institutions like Custodia’s SPDI. The stakes for constitutional structure, state innovation, and Bitcoin-adjacent banking could not be clearer.
Disclosure: I authored an amicus brief on behalf of the Wyoming Secretary of State supporting Custodia.
This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.