An appeals court has backed Federal Reserve Banks’ power to deny master accounts, two years after the Fed Board rejected Custodia’s membership bid over crypto risk concerns.
The Tenth Circuit has upheld a win for the Federal Reserve Bank of Kansas City and the Fed Board, ruling that Reserve Banks have discretion to refuse master-account access even when an applicant is legally eligible.
In a ruling published October 31, the court also said the Board’s role here did not amount to a reviewable “final agency action,” so Custodia’s APA challenge could not proceed.
A master account is the entry point to Fedwire and ACH. Without it, banks settle through correspondents, adding cost and latency.
Custodia, a Wyoming SPDI focused on digital-asset clients, applied in 2020. The Kansas City Fed agreed Custodia met the statute’s eligibility test, but later denied the request after the Fed published its 2022 access Guidelines, which created a three-tier risk framework.
Uninsured, unsupervised firms like Custodia sit in Tier 3 and face the strictest review.
In January 2023, the Kansas City Fed denied Custodia’s master account and, the same day, the Board rejected Custodia’s application to join the Federal Reserve System.
The opinion records that the Reserve Bank saw Custodia’s crypto-centred model as “unprecedented” and “highly likely” to be inconsistent with safe and sound practices absent federal supervision. Under internal procedures, the Reserve Bank consulted the Board, which replied it had “no concerns” with FRBKC communicating the denial.
The court’s reading of the law
In the recent ruling, the judges set out the legal backdrop first. They said the Federal Reserve Act’s section 342, which says a Reserve Bank “may receive” deposits, gives the Banks room to decide who gets an account.
They then read the Monetary Control Act’s line that services “shall be available” to non-member banks as part of the Board’s fee-setting rules, not a command to approve every eligible applicant. Finally, they pointed to Congress’s 2022 “Toomey Amendment,” which requires a public list of master-account requests marked approved, rejected, pending or withdrawn, as evidence that denials are contemplated.
Taken together, the court concluded, Reserve Banks have discretion over access.
On the separate APA issue, the court said a Board email noting it had “no concerns” with the Kansas City Fed moving forward did not change anyone’s legal rights. It was an internal, intermediate step; the final decision rested with the Kansas City Fed. That meant there was no “final agency action” by the Board for a court to review.
What it means now
The ruling confirms Reserve Banks can weigh risk and say no, especially for firms outside federal prudential supervision.
It narrows litigation routes by keeping APA review away from the Board and aligning with district-court decisions that treated access as discretionary. For crypto-adjacent models, the pathway to direct Fed access remains open in principle but harder in practice; reliance on correspondent banking is the likely fallback.
A separate opinion argued the MCA promised universal access (“shall be available”) and warned that broad discretion could make denials difficult to challenge.
