The U.S. Court of Appeals for the Tenth Circuit has rejected an effort by Custodia Bank to revive its legal challenge against the Federal Reserve over access to the U.S. banking system. In a March 13 decision, the appellate court voted 7–3 against rehearing the case en banc, leaving intact an earlier ruling issued in October.

Court decision in Custodia Bank vs. Federal Reserve case

That decision held that regional Federal Reserve banks have the authority to decide whether financial institutions receive a so-called “master account,” which provides direct access to the central bank’s payment infrastructure. Master accounts allow banks to send and settle payments through Federal Reserve systems without relying on intermediary institutions.

Without such access, banks must route transactions through a partner bank that already holds an account with the central bank. Custodia, a Wyoming-chartered bank focused on digital assets, has been seeking a master account since 2020. The institution has argued that direct access would allow it to offer payment and settlement services to Web3 companies while avoiding dependence on traditional banking partners. The Federal Reserve rejected the application in 2023.

Custodia Bank faces rejection in 10th circuit

Regulators cited concerns related to the bank’s crypto-focused business model, saying the activities could pose risks to safety, soundness, and financial stability. Following that decision, Custodia filed a lawsuit claiming the Federal Reserve was obligated under federal law to grant master accounts to legally chartered banks.

The bank argued that the central bank does not have unlimited discretion to deny access once an institution is properly licensed. Courts have so far sided with the Federal Reserve. The previous ruling from the Tenth Circuit determined that the law does not compel the central bank to approve every application and that Reserve Banks retain judgment in deciding whether to grant the accounts.

By declining to rehear the case, the appeals court left that interpretation unchanged. The decision also reflects ongoing tension between crypto-focused financial institutions and U.S. regulators over how digital asset businesses should integrate with the traditional banking system.

Custodia has positioned itself as a regulated bank designed to serve crypto companies, offering custody and payment services tied to blockchain assets. Access to a master account would allow the bank to settle transactions directly through Federal Reserve payment rails rather than relying on correspondent banks.

The ruling was not unanimous. In a dissent, judges Timothy Tymkovich and Allison Eid argued that the majority’s approach grants too much unchecked authority to Federal Reserve banks. The dissent warned that allowing Reserve Banks broad discretion could enable them to effectively block state-chartered institutions from accessing the core infrastructure of the U.S. financial system.