The Tenth Circuit Court of Appeals has denied Custodia Bank’s request for a rehearing in its legal bid to obtain a Federal Reserve master account. The 7-3 ruling upholds a previous decision affirming that Reserve Banks have discretion over granting access to the central banking system. Dissenting judges warned this gives Federal Reserve banks excessive control over key financial infrastructure.
The U.S. appeals court has denied a rehearing for Custodia Bank’s legal challenge against the Federal Reserve. The decision maintains a previous ruling that allows Reserve Banks discretion regarding access to master accounts.
A master account permits direct access to the Federal Reserve payment system for clearing transactions. Banks without such accounts must rely on intermediary institutions to handle their transactions.
Custodia Bank, a Wyoming-chartered digital asset specialist, applied for a master account in 2020. The Federal Reserve denied the application in 2023, citing risks to financial stability from the bank’s model.
The bank subsequently sued, arguing the law required the Fed to provide access to properly chartered institutions. Federal courts have consistently ruled that Reserve Banks possess the discretion to make this judgment.
The latest decision upholds the October ruling, meaning the Federal Reserve retains its authority. Three judges dissented, arguing the ruling grants Federal Reserve banks significant, unrestrained power.
The dissent cautioned on the impact on chartered banks, warning broad discretion could block access to key financial infrastructure. For Custodia Bank, the ruling maintains the current barrier to direct access.
