The United States Court of Appeals for the Tenth Circuit sided with the Federal Reserve, ICBA, and other groups by rejecting Custodia Bank’s argument that it should be granted automatic master account access because it holds a state charter.
Case Details: Custodia Bank, a Wyoming-chartered special purpose depository institution that is not a member of the Federal Reserve, requested access to a master account. The Kansas City Fed denied the request because it determined Custodia’s crypto-focused business model introduced undue risk into the Fed’s payment systems and services. In response, Custodia filed suit, arguing the Fed does not have any discretion over who gets access to Fed accounts and services and must grant access to all eligible institutions no matter the risk they pose to the financial system.
Court Ruling: In a 2-1 majority ruling, the court said the plain language of the relevant statutes grants Federal Reserve Banks discretion to reject master account access requests from eligible entities. The court rejected Custodia’s “attempt to impair the Fed’s ability to safeguard our nation’s financial system through the exercise of discretion to reject master account access.”
Background: Nonbank entities and crypto institutions are trying to obtain access to master accounts—industry settlement accounts that are traditionally limited to depository institutions that can demonstrate through an applications process that they pose limited risk to the banking system.
ICBA View: ICBA is concerned with growing demands from nonbank entities to access master accounts. As reported in Independent Banker magazine, ICBA supports limiting master account access to only those institutions that meet the financial services sector’s highest standards to protect the safety of the U.S. banking system.
Statement: In a national news release, ICBA President and CEO Rebeca Romero Rainey said community banks operate under a robust framework of federal oversight, capital standards and deposit insurance designed to protect consumers and maintain trust. “Extending the privileges of master account access to entities that are not subject to the same regulation as community banks would have undermined that stability,” she said.
Reserve Bank Discretion: In a prior friend-of-the-court brief filed with the U.S. Court of Appeals for the Tenth Circuit, ICBA and other groups supported the Fed’s position. In the brief, ICBA said federal law permits the Reserve Banks statutory discretion to grant or deny applications for master account access to ensure that such accounts are given only to institutions that are found, on an ongoing basis, to have the financial and operational ability to safely and securely have direct access to the federal banking network.
Prior Custodia Bank Ruling: A federal judge in 2024 largely upheld the Fed’s master account denial of Custodia Bank. ICBA commended the Fed’s response to the Custodia application, saying the agency’s actions appropriately safeguard the banking system from the risks posed by novel institutions.