The US Court of Appeals for the Tenth Circuit has rejected Custodia Bank’s attempt to renew its legal challenge against the Federal Reserve over access to the US banking system. In a March 13 decision, the appeals court voted 7-3 against a retrial on the ban, upholding an earlier ruling issued in October.
The court’s decision in the case of Custodia Bank v. Federal Reserve
That decision said regional Federal Reserve banks have the authority to decide whether financial institutions get a so-called “super account,” which provides direct access to the central bank’s payment infrastructure. Capital accounts allow banks to send and pay payments through the Federal Reserve systems without relying on intermediary institutions.
Without such access, banks must route transactions through a partner bank that already has an account with the central bank. Custodia, a Wyoming-based chartered bank specializing in digital assets, has been seeking a large account since 2020. The agency argued that direct access would allow it to provide payment and settlement services to Web3 companies while avoiding dependence on traditional banking partners. The Federal Reserve rejected the request in 2023.
Custodia Bank faces rejection in the 10th Circuit
Regulators have raised concerns related to the bank’s crypto-focused business model, saying the operations could pose a threat to safety, soundness and financial stability. After that decision, Custodia filed a lawsuit alleging that the Federal Reserve was obligated under federal law to provide primary accounts to legally chartered banks.
The bank argued that the central bank does not have unlimited discretion to deny access if the institution is properly licensed. The courts have so far sided with the Federal Reserve. A previous decision from the Tenth Circuit ruled that the law does not compel a central bank to approve every request and that Consumer Banks retain discretion in deciding whether to grant accounts.
By refusing to rehear the case, the appeals court left that definition intact. The decision also reflects the ongoing disagreement between crypto-focused financial institutions and US regulators over how digital asset businesses should be integrated into the mainstream banking system.
Custodia has positioned itself as a regulated bank designed to help crypto companies, providing custody and payment services tied to blockchain assets. Access to a master account will allow the bank to pay transactions directly through the Federal Reserve’s payment channels rather than relying on correspondent banks.
The decision was unanimous. In dissent, justices Timothy Tymkovich and Allison Eid argued that the majority’s approach gives the Federal Reserve banks too much unchecked authority. Opponents have warned that allowing the Reserve Banks broad discretion would help them effectively block government-funded institutions from accessing the core infrastructure of the American financial system.
