US Appeals Court Backs Fed’s Decision to Deny Custodia Bank a Master Account

Core Viewpoint - A federal appeals court has upheld the Federal Reserve's authority to deny crypto-focused bank Custodia access to a master account, impacting its efforts to connect with the US central banking system [1][8]. Group 1: Court Ruling - The Tenth Circuit Court of Appeals ruled 2–1 that the Federal Reserve has discretion over which financial institutions can hold master accounts, which are essential for direct access to Fed services [3][8]. - The court affirmed that while Custodia is technically eligible for a master account, eligibility does not equate to entitlement [3]. Group 2: Federal Reserve's Justification - Judge David Ebel stated that the Fed's authority to reject master account access requests is crucial for maintaining financial stability [4][8]. - The Federal Reserve Bank of Kansas City expressed concerns that Custodia's business model, focused on crypto asset custody and settlement, poses "undue risk" to the financial system [5]. Group 3: Dissenting Opinion - Judge Timothy Tymkovich dissented, arguing that the Fed is mandated to provide payment services to all eligible non-member banks, including Custodia [6]. - Custodia viewed the dissent as a validation of its position, despite the overall ruling being disappointing [6][7]. Group 4: Implications for the Industry - The ruling leaves Custodia and other crypto-oriented financial institutions without direct access to the US payments infrastructure, as no crypto-focused bank has yet received a master account [7][8].