Federal Court Rejects Custodia Bank’s Master Account Request

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Federal Court Rejects Custodia Banks Master Account Request

A US federal court has rejected Custodia Bank‘s final attempt to challenge the Federal Reserve’s authority over granting master accounts — effectively ending the crypto-focused bank‘s five-year-long battle for direct access to the central bank’s payment system.

The US Court of Appeals for the Tenth Circuit said in a filing on Friday that it wouldn‘t hear Custodia’s final appeal on that point in a 7-3 vote.

Custodia first applied for a master account in October 2020, which allows financial institutions to hold reserves directly at the Federal Reserve and access its payment rails, enabling them to settle transactions without relying on intermediary banks.

After the Fed rejected its master account application, Custodia turned to the courts, arguing the Monetary Control Act entitles state-chartered banks to access Fed services and therefore a master account.

However, the multiple courts have now ruled that the Fed retains discretion over whether to grant master accounts.

Custodias blow comes as Kraken became the first crypto platform to receive a master account from the Federal Reserve Bank of Kansas City on March 4.

Krakens master account enables it to connect to the Fedwire payments system, though it does not include the full range of services available to traditional banks.

The move raised hopes that US regulators could offer “skinny” or limited master accounts to crypto firms.

Banks not given master accounts akin to “death sentence”

While only three judges sided with Custodia, one of them, Judge Timothy Tymkovich, wrote a strong dissenting opinion, stating that “a master account is ‘indispensable’ for a banks operations” and being denied one is “akin to a death sentence.”

He noted that three months after Custodias application in October 2020, the Fed said Custodia was eligible and told it there were “no showstoppers” with its application.

He added, “I do not agree that Reserve Banks have discretion over account applications and would have allowed the mandamus claim to go forward.”