In a 2-1 decision issued today, the Tenth Circuit affirmed the denial of a Federal Reserve master account to Custodia Bank, the Wyoming-chartered Special Purpose Depository Institution (SPDI) that has become the test case for crypto-native banking. The panel upheld the district court across the board and left Reserve Banks with broad (and potentially unreviewable, in the words of the dissent) discretion over access.
Master accounts are the keys to the fiat kingdom. They’re the ledger entries that let institutions clear and settle directly at the Fed; without one, a “bank” is functionally just a vault dependent on fickle intermediaries and third-party rails. That practical choke point (which has been abused by regulators before) gives any discretion over access extraordinary policy significance.
Wyoming created SPDIs to pair traditional (but fully reserved) dollar banking rails with segregated digital-asset services. Custodia, barred from making loans and required to keep 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 2022 access Guidelines, FRBKC treated Custodia as a Tier 3 applicant, the bucket that “generally receive[s] the strictest level of review,” and formally denied the account in January 2023. The Board, consulted beforehand, emailed 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, and essentially granted the Federal Reserve broad, and potentially unbounded, discretion on this point. Reading the Federal Reserve Act’s § 342 (“may receive deposits”) together with the Monetary Control Act’s § 248a, the panel concluded that access decisions remain discretionary with the Reserve Banks; § 248a(c)(2)’s “shall be available” language concerns pricing and parity for services the Board prices, it doesn’t force the Banks to open an account for every eligible institution. The court also treated the 2022 “Toomey Amendment” (§ 248c) as transparency-oriented, not a mandate to approve applications.
On the APA front, the panel held the Board’s “no-concerns” email was not final agency action, the ultimate decision belonged to FRBKC under the Guidelines, so it carried no independent legal effect. That also undercut theories aimed at the Board itself. Finally, Judge Ebel dispenses with Custodia’s constitutional argument related to the Presidential appointment of inferior officers on a (in my opinion) flimsy technicality: that the argument was not properly preserved.
The Dissent
Judge Tymkovich dissented, reading § 248a(c)(2)’s “shall be available” as a substantive access guarantee, not mere pricing boilerplate. In his view, when Congress opened the Fed’s services to “nonmember depository institutions,” it made master-account access a duty enforceable, if necessary, through traditional tools like mandamus, rather than a roving veto lodged in unappointed Reserve Bank officers (a framework he warns invites constitutional headaches). He also emphasized that courts in related master-account litigation (e.g., Banco San Juan) recognize the centrality of § 342 but do not resolve away the MCA’s “shall” command.
We are bound by the ordinary language of the statute and, in my view, shall means shall. Section § 248a(c)(2) mandates access to the Fed’s payment services for all nonmember depository institutions. By denying Custodia a master account, the Kansas City Fed has unlawfully denied it access to those services which are vital to its business. That, it cannot do.
The Road Ahead
We need to see the result in PayServices (Ninth Circuit). If that court goes the other way, a circuit split would materially increase the odds of Supreme Court review. It’s interesting to note that Judge Tymkovich was also on that case. But, for now, the ball is firmly in Custodia’s court.
Today’s ruling cements Reserve Bank discretion at the access gate; the dissent, by contrast, reads the MCA as Congress’s 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, couldn’t be clearer.
Disclosure: I authored 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 their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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