US Federal Court Ends Custodia Bank’s Bid for Federal Reserve Master Account

A US federal appeals court has rejected the final attempt by Custodia Bank to challenge the authority of the Federal Reserve over granting master accounts, bringing a five-year legal dispute to a close. The United States Court of Appeals for the Tenth Circuit declined to hear Custodia’s final appeal in a 7–3 vote, effectively ending the bank’s effort to obtain direct access to the central bank’s payment infrastructure.

Custodia first applied for a master account in October 2020. Such accounts allow financial institutions to hold reserves directly with the Federal Reserve and access its payment systems, enabling transactions to be settled without relying on intermediary banks.

Federal Reserve Authority Over Master Accounts

After the application was denied, Custodia argued in court that the Monetary Control Act entitles state-chartered banks to Federal Reserve services, including master accounts. However, courts ultimately ruled that the Federal Reserve retains discretion in approving or rejecting these applications.

Judicial Dissent Highlights Operational Impact

Despite the ruling, Judge Timothy Tymkovich issued a dissenting opinion, arguing that a master account is indispensable for a bank’s daily operations and that denial can be comparable to a “death sentence.” He also noted earlier signals suggesting the bank’s application had no major obstacles.

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