Custodia Bank has encountered a major legal defeat in its ongoing effort to obtain a coveted master account from the Federal Reserve. The 10th U.S. Circuit Court of Appeals upheld the Federal Reserve’s authority to deny the bank access, marking a significant turning point in the years-long legal standoff between the crypto-focused institution and America’s central banking system.
Founded by prominent crypto advocate Caitlin Long, Custodia Bank operates out of Wyoming and has positioned itself as a bridge between the traditional financial system and the digital asset economy. In 2020, the bank submitted an application to the Federal Reserve Bank of Kansas City (FRBKC) seeking a master account. This type of account would provide Custodia with direct access to the Fed’s payment infrastructure, eliminating the need for correspondent banking relationships and allowing more efficient transaction processing.
However, the FRBKC rejected the application in 2023, citing concerns around Custodia’s business model and perceived regulatory risks. In response, Custodia filed a lawsuit in 2022, alleging that the Federal Reserve had unlawfully delayed a decision on its application. The bank argued that the delay and subsequent rejection were not only unjustified but also potentially prompted by bias against crypto-native financial institutions.
In March 2024, a federal district court in Wyoming dismissed Custodia’s claims. Judge Scott Skavdahl ruled that the Federal Reserve is not legally required to issue a master account to every applicant, regardless of their eligibility status. Skavdahl emphasized that the relevant statutes grant the Fed broad discretion in deciding who receives access to its systems.
Following the district court’s decision, Custodia escalated the matter by filing an appeal with the 10th Circuit Court. Now, nearly two years after the initial lawsuit was filed, the appellate court has affirmed the lower court’s ruling. The panel concluded that the Federal Reserve has the legal authority to determine access to master accounts on a discretionary basis, not an obligatory one.
The court stated, “The plain language of the relevant statutes can only reasonably be read to give the Federal Reserve Banks discretion in granting or denying requests for master accounts.” As such, Custodia’s claim that it was statutorily entitled to such an account was rejected.
Despite the unfavorable outcome, Custodia is not backing down. In a public statement, the bank acknowledged the setback but pointed to a dissenting opinion from one of the appellate judges as a sign that legal questions remain unresolved. According to the bank, the dissent raised substantial Constitutional concerns regarding the Federal Reserve’s unchecked authority and suggested that further judicial review might be warranted.
Custodia also highlighted that the dissenting opinion comes amid a broader judicial divide. Referencing a similar case — the Fourth Corner Credit Union dispute — the bank noted that there is now a split among judges within the 10th Circuit, with active judges reportedly leaning in Custodia’s favor (2–1). This judicial division has prompted the bank to seriously consider filing a petition for a rehearing.
The broader implication of this legal battle touches on a critical issue in U.S. banking policy: should the Federal Reserve be allowed to unilaterally decide which institutions can access the central bank’s payment systems, particularly when it comes to innovative fintech and crypto platforms? As the crypto sector continues to mature, this case could set a precedent for how decentralized finance interfaces with traditional regulatory frameworks.
Legal experts note that while the Federal Reserve’s discretion has been upheld, the courts have not ruled out all future challenges. The dissenting opinion, in particular, could serve as a foundation for Custodia or other institutions to bring the case to the Supreme Court or seek legislative reform aimed at clarifying the Fed’s obligations.
In the meantime, Custodia’s operations remain constrained by its lack of direct access to the Fed’s systems. Without a master account, the bank must rely on third-party financial institutions to process payments, which introduces added costs, delays, and compliance hurdles.
This case also reignites debate over the role of innovation in the banking sector. Critics argue that the Federal Reserve is stifling competition and technological progress by denying access to newer players, while supporters claim that the central bank must act cautiously to protect the integrity and stability of the financial system.
Industry observers are watching closely to see whether Custodia will pursue further legal action or pivot its strategy. Some speculate that the bank could attempt to collaborate with more traditional financial institutions or even restructure its operations to better align with regulatory expectations.
Meanwhile, market sentiment has remained largely unaffected by the ruling. At the time of the court’s decision, the total cryptocurrency market capitalization stood at $3.68 trillion, up 2.65% on the day — a sign that investor confidence in the broader digital asset space remains intact.
Looking ahead, the outcome of Custodia’s battle with the Fed could influence how other crypto banks and fintech firms approach regulatory engagement. If the courts continue to side with the Federal Reserve, institutions may need to rethink their business models or push harder for legislative change.
Lawmakers have already begun to take interest in the issue, with some members of Congress proposing bills to ensure that eligible institutions cannot be arbitrarily denied access to the Fed’s infrastructure. If such legislation gains traction, it could force the central bank to adopt clearer standards for approving or rejecting master account applications.
For now, however, Custodia’s path remains uncertain. Whether through appeals, lobbying, or adaptation, the bank’s next move will likely shape the future dynamics between crypto-native financial services and traditional regulatory power structures in the United States.