Insights into Custodia’s Legal Struggles with the Federal Reserve
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Custodia’s Legal Setback in the Master Account Dispute
In a significant legal development, Custodia, a prominent crypto bank, has faced another defeat in its ongoing legal efforts to challenge the Federal Reserve’s authority over master account approvals. The US Court of Appeals for the Tenth Circuit recently dismissed Custodia’s plea for a rehearing, following a previous ruling favoring the Federal Reserve in October 2025.
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Background of the Legal Battle
In 2023, the Federal Reserve Bank of Kansas City (FRBKC) denied Custodia’s application for a master account. This status would have allowed the crypto bank direct access to the Federal Reserve’s payment network, removing the necessity for third-party intermediaries. Challenging this decision, Custodia took the matter to a Wyoming district court in 2024, asserting its qualification for a master account as a nonmember depository institution and arguing that the FRBKC lacked constitutional grounds to reject its application, citing compliance with all necessary criteria.
Appeals and Judicial Decisions
Following an unfavorable outcome at the state court level, Custodia escalated the case to the US Court of Appeals for the Tenth Circuit. A panel of three judges upheld the Federal Reserve’s authority, affirming that the central bank retains ultimate discretion over master account grants, irrespective of an applicant’s qualifications. In December 2025, Custodia sought an en banc rehearing, which would involve a full panel review. However, independent editor Eleanor Terrett reported that the appellate court sustained the initial ruling favoring the FRBKC.
The decision by the court was reached with a 7-3 vote, emphasizing the Federal Reserve’s decisive role in such matters. Dissenting judges, Timothy Tymkovich and Allison Eid, cautioned that allowing Federal Reserve banks unrestricted power to accept or reject applications from state-chartered entities could conflict with the Monetary Control Act of 1980.
Future Prospects for Custodia
Custodia has several options moving forward. While it can appeal to the US Supreme Court, the likelihood of the court agreeing to review the case remains minimal. Alternatively, Custodia may consider applying for a special limited master account, akin to the one recently granted to the crypto exchange Kraken by the FRBKC. Although this type of account differs from standard master accounts, it offers similar functionalities that could benefit Custodia’s operations.
As of now, Custodia has not released any official statement regarding the appellate court’s latest decision.
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