Custodia Bank Loses Bid for Rehearing in Federal Reserve Master Account Case

Custodia Bank, a digital asset-focused institution, has faced another legal setback in its prolonged battle with the Federal Reserve. The US Court of Appeals for the Tenth Circuit denied the bank's petition for a rehearing, upholding an earlier ruling that affirmed the Federal Reserve's exclusive authority over master account approvals.

The dispute originated in 2023 when the Federal Reserve Bank of Kansas City rejected Custodia's application for a master account—a crucial designation that would have provided direct access to Fed payment systems. Custodia argued its status as a Wyoming-chartered special purpose depository institution qualified it for such access, challenging the constitutionality of the Fed's denial.

Legal experts view this outcome as reinforcing the central bank's gatekeeper role in the financial system, particularly regarding cryptocurrency-related institutions. The decision maintains the status quo where even technically qualified applicants remain subject to the Fed's discretionary authority.