Custodia Bank, the popular crypto bank founded by Caitlin Long, has suffered another court setback in its fight for a Federal Reserve master account. Notably, the Wyoming-based institution failed to secure a favorable appeal ruling after an initial court rejection in March 2024. Appeals Court Upholds Fed Decision In Custodia Case In 2020, Custodia Bank filed an application with the Federal Reserve Bank of Kansas City (FRBKC) seeking a master account, which would grant the crypto-focused institution direct access to the Federal Reserve’s payment system, allowing it to operate without relying on intermediary banks. However, the application was rejected in 2023, with the FRBKC citing concerns over banking practices. This decision came after Custodia had already filed a lawsuit against the Federal Reserve in 2022, accusing the regulator of an “unlawful delay” in processing its application. In March 2024, the popular crypto bank legally challenged the Fed’s decision, arguing that the central bank lacked the legal authority to deny its master account application. The bank also accused the Federal Reserve Board of Governors of possible collusion with the Kansas City Fed in orchestrating the rejection. Judge Scott Skavdahl of the US District Court for the District of Wyoming dismissed Custodia’s claims, ruling that federal law does not mandate the Federal Reserve to grant a master account to every eligible institution. He affirmed that the Fed retains broad discretion in deciding whether to approve or deny such applications. This ruling was followed by an appeal at the 10th Circuit Court of Appeals in April 2024. Nineteen months later, the Appellate court has now agreed with the lower court, upholding the Fed’s discretion in granting a master account or not, regardless of eligibility. The ruling said: We agree with the district court that “[t]he 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.” Custodia Bank, 728 F. Supp. 3d at 1245. Accordingly, we hold that Custodia is not statutorily and automatically entitled to a master account. We AFFIRM the district court’s judgment in favor of Defendants on all claims. What Next For Custodia? In a response to the court ruling, Custodia has hinted at a potential petition for rehearing, citing a strong dissenting opinion by one of the appeals court judges. The statement read: While we were hoping for a win at the Tenth Circuit today, we received the next best thing — a strong dissent. It raised serious Constitutional questions about the Federal Reserve and was written by a judge sitting by designation on the panel of a similar case in the Ninth Circuit. Including Judge Bacharach’s opinion in the Fourth Corner case, there’s now a 2–2 split on this question among Tenth Circuit judges (2–1 in Custodia’s favor among active Tenth Circuit judges). Custodia has an option to petition for a rehearing by the Tenth Circuit, and we are actively considering that. At press time, the total crypto market cap remains valued at $3.68 trillion following a 2.65% gain.
