In a 2-1 decision handed down today, the Tenth Circuit affirmed the Federal Reserve’s denial of a master account to Custody Bank, a Wyoming-chartered special purpose depository institution (SPDI) that has become a test case for crypto-native banking. The panel fully endorsed the district court’s opinion, leaving the Reserve Bank with wide (in the dissenting opinion’s words, potentially unreviewable) discretion over access.
A master account is your key to the fiat kingdom. These are ledger entries that allow financial institutions to clear and settle directly at the Fed. Without this, “banks” become functionally mere repositories dependent on fickle intermediaries and third-party rails. This practical hurdle, which has been exploited in the past by regulators, gives discretionary access rights special policy importance.
Wyoming created SPDI to combine traditional (but fully reserved) dollar banking rails with segregated digital asset services. Custodia applied for a master account in October 2020 because it was prohibited from lending and needed to maintain dollar deposits backed 100% by high-quality liquid assets. Initial signals from the Kansas City Fed were positive (“no significant issues”), but after the board finalized the 2022 access guidelines, the FRBKC treated Custodial as a Tier 3 applicant “generally subject to the most stringent level of review.” The board consulted in advance and notified via email that it had “no concerns” with FRBKC passing on its refusal.
majority opinion
Judge Ebell, writing for the court, dismissed Custodi’s statutory and administrative claims, effectively granting the Federal Reserve broad and potentially unlimited discretion in this regard. Reading section 342 of the Federal Reserve Act (“may receive deposits”) in conjunction with section 248a of the Financial Management Act, the panel concluded that access decisions remain at the discretion of the Reserve Bank. The “shall be made available” language in § 248a(c)(2) pertains to the pricing and equivalency of services priced by the Board and does not compel banks to open accounts with all eligible institutions. The court also treated the Toomey Amendment of 2022 (§248c) as being transparent and not obligatory to approve applications.
On the APA front, the Committee determined that the Board’s “no concern” email was not a final agency action, and that the final decision belonged to the FRBKC under the guidelines and had no independent legal effect. It also undermined theories aimed at the board itself. Finally, Judge Ebel ignored Custodia’s constitutional arguments regarding the president’s appointment of junior officers on the grounds that (in my opinion) the arguments were not properly preserved, based on flimsy technicalities.
opposing opinion
Judge Timkovich dissented, interpreting § 248a(c)(2)’s “shall be available” to be a substantial guarantee of access, not just a pricing platitude. In his view, when Congress opened the Fed’s services to “nonmember depository institutions,” it made it a mandate that could force access to master accounts if necessary through traditional tools like mandamus, rather than a sharp veto extended to unappointed Reserve Bank officials (a framework he warns would create constitutional headaches). He also emphasized that while courts in related master account cases (such as San Juan Bank) have recognized the centrality of Section 342, this does not invalidate the MCA’s “mandatory” orders.
We are bound by the ordinary language of the Act and, in my view, shall means ‘shall’. Section § 248a(c)(2) requires all nonmember depository institutions to have access to the Federal Reserve’s clearing services. By denying Custodea a master account, the Kansas City Fed is unlawfully denying it access to a business-critical service. That’s not possible.
The road ahead
you need to check the results Paid service (9th Circuit). If the court goes in the opposite direction, the split circuit would greatly increase the likelihood of a Supreme Court review. It is interesting that Judge Timkovich was also involved in this case. But for now, the ball is firmly in Custodia’s court.
Today’s judgment strengthens the Reserve Bank’s discretion in access gates. Opponents, by contrast, interpret the MCA as Congress’s promise of open access to state-chartered depository institutions like Custody’s SPDI. The stakes in constitutional structure, national innovation, and Bitcoin-adjacent banking could not be more clear.
Disclosure: I have prepared a court brief on behalf of the Wyoming Secretary of State in support of Custodia.
This is a guest post by Colin Crossman. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
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