Custodia’s five-year fight for a Fed master account effectively ends in 7-3 appeals court loss

The U.S. Court of Appeals for the 10th Circuit on Friday denied Custodia Bank’s petition for rehearing en banc in its lawsuit against the Federal Reserve, effectively closing the crypto bank’s last serious appellate avenue to force the central bank to grant it a master account.

The full court voted 7-3 against rehearing, leaving intact an October 2025 panel ruling that held the Fed has discretion to approve or deny master account applications from eligible institutions. That 2-1 panel decision had itself upheld a March 2024 district court ruling in Wyoming reaching the same conclusion.

Custodia, a Wyoming-chartered special purpose depository institution founded by Wall Street veteran Caitlin Long, first applied for a master account in October 2020. The Kansas City Fed confirmed the application contained “no showstoppers” in early 2021 but ultimately denied it in January 2023, citing concerns about the bank’s crypto-focused business model.

Custodia sued in June 2022, initially over the 19-month processing delay and later arguing that the Monetary Control Act entitled any eligible depository institution to a master account as a matter of law. Courts at every level have disagreed.

Judge Timothy Tymkovich authored a dissent from Friday’s en banc denial, warning that the majority’s interpretation hands regional Federal Reserve Banks unchecked power over which state-chartered institutions can access the payments system. He wrote that the ruling raises constitutional concerns about granting such authority to officials who are not appointed under Article II of the Constitution.

“Without a master account, a bank cannot operate in the modern banking system,” Tymkovich wrote in the dissent. He added that denying one is functionally equivalent to vetoing a state-issued bank charter, undermining the country’s dual banking system. Judge Allison Eid joined the dissent.

Custodia did not immediately respond to a request for comment. A person familiar with the bank’s efforts told CoinDesk on Friday that Custodia is still pursuing access. The bank’s remaining legal option would be a petition for certiorari to the U.S. Supreme Court, a long shot in any circumstance, though the constitutional questions raised by Tymkovich and the involvement of former solicitors general Paul Clement and Don Verrilli as amici at earlier stages of the case could lend the petition some credibility.

Fed granted Kraken limited master account

The timing is striking. Custodia’s courtroom defeat lands just days after the Federal Reserve Bank of Kansas City granted Kraken Financial a limited-purpose master account, making it the first crypto-native firm to receive one. TD Cowen analyst Jaret Seiberg said he expects the Kraken approval to be the first of many.

Fed Governor Christopher Waller proposed the concept of a “skinny master account” last year, designed to offer eligible institutions access to Fed payment rails while restricting features like discount window lending and interest on reserves. The Fed Board is now actively developing that framework, according to TD Cowen. The Fed also withdrew restrictive 2023 guidance that had underpinned its earlier posture toward crypto firms, including Custodia.

Whether Custodia elects to petition the Supreme Court, attempts to reapply for a master account through the new administrative channels, or both, remains to be seen. Custodia has continued to build in the meantime, launching the Avit stablecoin in partnership with Vantage Bank last year.