Fed Scraps 2023 Crypto Banking Ban That Blocked Crypto Bank Custodia

The Federal Reserve just reversed a major crypto banking restriction—and the implications are seismic.

Regulatory Backflip

That 2023 policy, which effectively blocked crypto-native banks like Custodia from accessing the Federal Reserve's master accounts, is officially gone. The Fed didn't just tweak the rules; it tore up the playbook that kept digital asset firms locked out of the core banking system. This move grants legitimate crypto businesses the plumbing traditional finance has always enjoyed.

Why This Matters Now

Access to a master account is the golden ticket. It lets financial institutions settle transactions directly with the Fed, bypassing intermediary banks. For crypto firms, this means faster, cheaper, and more secure movement of digital assets. It's a foundational step toward integrating blockchain-based finance with the legacy system.

The Ripple Effect

Watch for a surge in institutional crypto custody solutions and payment rails. Banks that were sitting on the sidelines due to regulatory uncertainty now have a clearer path forward. This isn't just about Custodia; it's a green light for an entire sector that's been operating in the shadows.

A cynical take? The same regulators who spent years building walls are now selling the doors—probably because they finally saw the tax revenue on the other side. The Fed's pivot signals that crypto's institutional era isn't coming; it's already here, and the old guard is scrambling to control the narrative.

Custodia Escalates Legal Battle After Years of Regulatory Roadblocks

Custodia filed a petition with the Tenth Circuit Court of Appeals on December 15, requesting en banc review of the Fed’s denial of its master account after a three-judge panel upheld the rejection in October.

The bank argues the decision violates the Monetary Control Act’s mandate that payment services “” to eligible depository institutions, creating unconstitutional veto power over state banking charters.

Without master account access, Custodia cannot use Federal Reserve wire transfers or automated clearinghouse systems despite meeting all statutory requirements under Wyoming’s Special Purpose Depository Institution framework, which requires 100% reserve backing and prohibits lending to reduce risk.

The petition raises federalism concerns about federal regulators effectively overriding Wyoming’s 2020 charter decision, which was designed to attract digital asset companies within stringent safety parameters.

Back in November, Judge Timothy Tymkovich’s dissent highlighted that granting unreviewable discretion to regional Reserve Bank presidents raises constitutional questions, since those officials are selected by private bank directors rather than appropriately appointed as federal officers.

Custodia Bank petitions full appeals court to review Federal Reserve's master account denial, citing constitutional concerns and federal law violations.#Crypto #Bank #Fedhttps://t.co/KyM8MlA1WC

The dissent created a 2-2 split among circuit judges on whether the Monetary Control Act mandates master account access, with Tymkovich writing that the Fed’s interpretation grants unreviewable discretion while contradicting the statute’s plain language.

The Kansas City Fed denied Custodia’s application in January 2023 after 27 months, citing crypto-asset risks despite internal documents showing staff deemed the bank’s capital adequate and its executive team impressive.

Federal Reserve Governor Christopher Waller has since acknowledged the Fed possesses sufficient tools to manage risks through tailored account structures without resorting to blanket denials.

His October remarks undermined the necessity argument that regulators used to justify rejecting Custodia’s application, while broader investigations revealed systematic exclusionary practices across major banks.

Banking Giants Exposed for Inappropriate Crypto Restrictions

The Office of the Comptroller of the Currency released findings showing all nine largest national banks imposed inappropriate restrictions on lawful businesses, including digital asset companies, between 2020 and 2023.

JPMorgan Chase, Bank of America, Citibank, Wells Fargo, U.S. Bank, Capital One, PNC, TD Bank, and BMO maintained internal policies requiring escalated approvals or blanket restrictions on sectors conflicting with institutional values.

The review examined thousands of debanking complaints after President TRUMP signed an August executive order intended to prevent account closures based solely on crypto activity.

OCC Comptroller Jonathan Gould said the practices were widespread and represented improper use of national bank charters.

Some users claimed their accounts were abruptly closed under vague references to concerning activity, fueling allegations of coordinated exclusion similar to Operation Chokepoint.

Banks insisted they did not discriminate, but many restrictive policies were publicly visible throughout the investigation period.

The regulatory shift extends beyond debanking investigations.

The OCC has conditionally approved five crypto firms, including @Circle and @Ripple, to launch national trust banks.#Ripple #Circlehttps://t.co/wCeTNrhOQZ

The OCC conditionally approved five crypto firms, including Circle and Ripple, to launch national trust banks in December, giving digital asset companies access to federal banking charters with single-rulebook oversight instead of navigating state-by-state regulations.

Paxos received federal supervision to issue stablecoins, while Ripple’s charter excludes RLUSD issuance but allows custody and settlement services without deposit-taking or lending activities.

The approved firms have 18 months to raise capital, assemble staff, and build compliant infrastructure before facing final OCC examination.