Tenth Circuit appeal escalates as Custodia crypto bank challenges Federal Reserve over master account access

In a major escalation of a five-year legal battle, Custodia crypto bank is asking a full federal appeals court to revisit the Federal Reserve’s denial of its master account.

Custodia crypto bank pushes for en banc review of Federal Reserve denial

Wyoming-chartered digital asset institution Custodia crypto bank has filed a petition with the full Tenth Circuit Court of Appeals, seeking reconsideration of the Federal Reserve’s refusal to grant its master account. The move intensifies a dispute that has been ongoing for five years and now centers on statutory interpretation and constitutional limits on the Fed’s authority.

The bank argues that the panel decision issued in October misread federal law and introduced serious constitutional questions. Moreover, Custodia claims the ruling effectively empowers regional Federal Reserve Banks with unchecked discretion over access to critical payment infrastructure for legally eligible institutions.

The petition, filed on December 15, requests an en banc review, asking all active judges on the Tenth Circuit to determine whether regional Reserve Banks may exercise unreviewable control over master account access for institutions that meet statutory requirements. That said, the case is also framed as a test of how far the central bank’s gatekeeping power can extend over innovative state-chartered banks.

Monetary Control Act at the center of the dispute

Custodia contends that the three-judge panel’s 2-1 ruling directly conflicts with the Monetary Control Act, which states that Federal Reserve payment services “shall be available” to nonmember depository institutions. According to the bank, that language creates a mandate, not a discretionary option, and the panel’s reading transforms it into what amounts to an unconstitutional veto over state banking charters.

Judge Timothy Tymkovich‘s dissent featured prominently in the petition. He aligned himself with Judge Gregory Bacharach‘s 2017 opinion in Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City, creating what Custodia describes as a 2-2 split among circuit judges on whether the Monetary Control Act requires the Fed to grant master accounts to qualifying entities. However, the majority in the recent panel decision rejected that view.

Tymkovich warned that the Fed’s position grants “unreviewable discretion” that raises “thorny questions” under Article II of the Constitution. Moreover, he argued that the approach contradicts the statute’s plain wording, which says payment services must be “available to nonmember depository institutions,” suggesting a legal obligation rather than a policy choice.

State SPDI framework and federalism banking authority

The petition also raises explicit federalism banking authority concerns, arguing that the Federal Reserve is effectively nullifying Wyoming’s decision to charter Custodia as a Special Purpose Depository Institution in 2020. Without access to a master account, the bank is unable to use core Fed payment services such as wire transfers and automated clearinghouse systems.

As a result, Custodia claims its state-issued charter is rendered largely meaningless, despite the bank meeting all statutory eligibility requirements under Wyoming law. Moreover, the filing asserts that this dynamic allows federal actors to override state banking policy choices designed to accommodate responsible blockchain and digital asset innovation.

Wyoming established its SPDI framework specifically to attract digital asset companies. The regime requires 100% reserve backing of deposits and prohibits lending in order to minimize risk. That said, state lawmakers intended this structure to demonstrate that robust consumer protections and blockchain-based financial services can coexist within a prudential regulatory model.

Custodia now argues that the Federal Reserve’s rejection undermines that carefully crafted regulatory framework. The bank says the Fed has frustrated the state’s attempt to create a secure environment for blockchain activity inside the traditional banking perimeter, while still complying with federal law.

Constitutional questions over Reserve Bank authority

The constitutional stakes of the case extend well beyond questions of federalism. Custodia’s legal team contends that if regional Reserve Bank presidents possess unreviewable discretion over master account decisions, they effectively operate as “Officers of the United States” wielding significant executive power without being appointed under constitutionally proper procedures.

Federal Reserve Bank presidents are chosen by boards of directors comprised of private bank representatives and then approved by the Board of Governors. Moreover, Custodia argues that this hybrid selection process conflicts with the Appointments Clause if those officials hold the discretionary authority endorsed by the Tenth Circuit majority.

The petition frames this as a structural constitutional problem. If unelected officials at regional Reserve Banks can decide which legally eligible institutions may connect to core federal payment rails, that decision-making power, according to Custodia, must satisfy the accountability and appointment standards that normally apply to executive branch officers.

How the Federal Reserve handled Custodia’s application

The Federal Reserve Bank of Kansas City denied Custodia’s master account application in January 2023 after a prolonged 27-month review period. The denial cited risks associated with the bank’s “crypto-asset activities,” even though bank officials had earlier indicated there were “no showstoppers” in the application process.

Internal Federal Reserve documents later revealed that staff viewed Custodia’s capital levels as “adequate” and described its executive team as “impressive”. However, those same records indicated that senior officials at the Board of Governors intervened as the review progressed, shifting the course of the decision.

Federal Reserve Governor Christopher Waller has since publicly acknowledged that the central bank holds enough tools to handle risk without categorically denying access to master accounts. Moreover, he suggested the Fed could “tailor” account structures and risk controls to the specific profile of each institution, weakening arguments that blanket denials are necessary for safety and soundness.

Custodia points to those statements and documents to argue that the denial was driven less by objective prudential concerns and more by policy opposition to crypto-related business models. The bank maintains that Congress, not the central bank, should decide whether legally chartered institutions engaged in blockchain activity may access core payment services.

Broader backdrop of crypto debanking practices

The legal battle for custodia bank crypto access is unfolding against a wider crackdown on digital asset firms across the U.S. banking system. At the same time, federal regulators are grappling with escalating complaints that financial institutions have targeted crypto businesses for debanking.

In December, the Office of the Comptroller of the Currency (OCC) released findings showing that all nine of the largest national banks imposed what it called “inappropriate” restrictions on lawful businesses between 2020 and 2023. Moreover, those constraints included policy barriers aimed at digital asset companies and other politically sensitive sectors.

Major institutions such as JPMorgan Chase, Bank of America, Citibank and Wells Fargo maintained internal policies that either required escalated approvals or used blanket limitations for customers whose activities conflicted with their institutional values. That said, the OCC’s review indicated banks often applied those restrictions to crypto-related clients even when those firms were fully compliant with existing laws.

The OCC examined thousands of customer complaints involving alleged political and religious debanking, as well as the exclusion of crypto businesses from basic financial services. While banks insisted they were not discriminating, the regulator found that many restrictive policies were publicly visible and had broad impact beyond narrow risk management concerns.

Strike CEO Jack Mallers said his own accounts were abruptly shut down after references to undefined “concerning activity.” Moreover, those closures have fueled industry accusations that a coordinated pattern of exclusion exists, despite repeated denials from regulators and large financial institutions.

The controversy intensified following an executive order signed in August that aimed to prevent banks from closing accounts solely because customers engage in lawful crypto-related activity. However, skeptics argue that enforcement and supervision will determine whether the order materially changes behavior across the banking sector.

Implications for innovation and state-level banking experiments

Custodia’s petition underscores how the outcome of this Tenth Circuit appeal could set a nationwide precedent for state-level banking experiments, particularly those tied to digital assets. Moreover, the case is being closely watched by policymakers in Wyoming and other jurisdictions that have considered similar SPDI-style frameworks.

If the Tenth Circuit ultimately upholds broad Federal Reserve discretion, states may have less practical ability to design bespoke charters that integrate blockchain into traditional finance. That said, a ruling that enforces a stronger reading of the Monetary Control Act could compel the Fed to accommodate a wider range of business models, provided they meet statutory eligibility and risk standards.

In the meantime, the dispute has become a focal point in the wider debate over central bank control of payment access, the boundaries of administrative power and the future of crypto-related banking in the United States. The eventual outcome will help define how far federal authorities can go in limiting or enabling new forms of digitally native financial institutions.