Custodia’s five-year fight for a Fed master account effectively ends in 7

Custodia's five-year fight for a Fed master account effectively ends in 7-3 appeals court loss
Quick Take
- The U.S. Court of Appeals for the 10th Circuit voted 7-3 on Friday to deny Custodia Bank’s petition for en banc rehearing, ending the Wyoming crypto bank’s courtroom push for a Federal Reserve master account that began over five years ago.
- The decision arrives days after the Kansas City Fed granted Kraken the first-ever limited crypto master account and as the Fed works on a broader “skinny master account” framework.
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The U.S. Court of Appeals for the 10th Circuit on Friday denied Custodia Bank's petition for rehearing en banc in its lawsuit against the Federal Reserve, effectively closing the crypto bank's last serious appellate avenue to force the central bank to grant it a master account.
The full court voted 7-3 against rehearing, leaving intact an October 2025 panel ruling that held the Fed has discretion to approve or deny master account applications from eligible institutions. That 2-1 panel decision had itself upheld a March 2024 district court ruling in Wyoming reaching the same conclusion.
Custodia, a Wyoming-chartered special purpose depository institution founded by Wall Street veteran Caitlin Long, first applied for a master account in October 2020. The Kansas City Fed confirmed the application contained "no showstoppers" in early 2021 but ultimately denied it in January 2023, citing concerns about the bank's crypto-focused business model.
Custodia sued in June 2022, initially over the 19-month processing delay and later arguing that the Monetary Control Act entitled any eligible depository institution to a master account as a matter of law. Courts at every level have disagreed.
Judge Timothy Tymkovich authored a dissent from Friday's en banc denial, warning that the majority's interpretation hands regional Federal Reserve Banks unchecked power over which state-chartered institutions can access the payments system. He wrote that the ruling raises constitutional concerns about granting such authority to officials who are not appointed under Article II of the Constitution.
"Without a master account, a bank cannot operate in the modern banking system," Tymkovich wrote in the dissent. He added that denying one is functionally equivalent to vetoing a state-issued bank charter, undermining the country's dual banking system. Judge Allison Eid joined the dissent.
Custodia did not immediately respond to a request for comment. A person familiar with the bank's efforts told CoinDesk on Friday that Custodia is still pursuing access. The bank's remaining legal option would be a petition for certiorari to the U.S. Supreme Court, a long shot in any circumstance, though the constitutional questions raised by Tymkovich and the involvement of former solicitors general Paul Clement and Don Verrilli as amici at earlier stages of the case could lend the petition some credibility.
Fed granted Kraken limited master account
The timing is striking. Custodia's courtroom defeat lands just days after the Federal Reserve Bank of Kansas City granted Kraken Financial a limited-purpose master account, making it the first crypto-native firm to receive one. TD Cowen analyst Jaret Seiberg said he expects the Kraken approval to be the first of many.
Fed Governor Christopher Waller proposed the concept of a "skinny master account" last year, designed to offer eligible institutions access to Fed payment rails while restricting features like discount window lending and interest on reserves. The Fed Board is now actively developing that framework, according to TD Cowen. The Fed also withdrew restrictive 2023 guidance that had underpinned its earlier posture toward crypto firms, including Custodia.
Whether Custodia elects to petition the Supreme Court, attempts to reapply for a master account through the new administrative channels, or both, remains to be seen. Custodia has continued to build in the meantime, launching the Avit stablecoin in partnership with Vantage Bank last year.
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Facts Only

* The U.S. Court of Appeals for the 10th Circuit voted 7-3 against granting Custodia Bank’s petition for *en banc* rehearing.
* The October 2025 panel ruling was upheld, determining the Fed has discretion in master account approvals.
* The ruling also upheld a March 2024 district court ruling.
* Custodia Bank first applied for a master account in October 2020.
* The Kansas City Fed denied the application in January 2023 due to concerns about the bank’s business model.
* Custodia sued in June 2022, initially over a 19-month processing delay.
* The Fed granted Kraken Financial a limited-purpose master account on Friday.
* Judge Tymkovich dissented, citing concerns about unchecked Fed power and constitutional issues.
* The Avit stablecoin was launched in partnership with Vantage Bank last year.

Executive Summary

The U.S. Court of Appeals for the 10th Circuit has denied Custodia Bank’s request for an *en banc* rehearing, effectively ending its five-year legal battle with the Federal Reserve. The ruling, a 7-3 decision, upholds the October 2025 panel ruling that the Fed has discretion in approving or denying master account applications. This decision follows a Kansas City Fed grant to Kraken Financial for a limited crypto master account and the Fed's ongoing development of a "skinny master account" framework. Custodia’s initial application in 2020 was denied in January 2023 due to concerns about its crypto-focused business model, leading to a lawsuit. Judge Tymkovich’s dissent highlighted concerns about unchecked power for regional Federal Reserve Banks and potential constitutional issues. The timing aligns with Kraken’s recent approval, suggesting a shift in the Fed’s approach. Custodia remains an active participant in the crypto space, having launched the Avit stablecoin. The case highlights ongoing tensions between traditional financial institutions and the burgeoning crypto industry, and the potential impact on access to the U.S. payments system.

Full Take

The narrative presented here is a classic case of regulatory capture, albeit couched in terms of “discretion.” The 10th Circuit’s decision isn’t simply about facts; it’s about framing. The fact that Kraken received a master account *before* Custodia highlights a fundamental asymmetry: the Fed is actively constructing a pathway for crypto institutions, while simultaneously erecting barriers for those pushing against the established system. This is a clear application of ARC-0043 Motte-and-Bailey – the “discretion” argument is the motte, and the insistence that Custodia’s application was “no showstoppers” is the bailey, designed to obscure the underlying power imbalance. The timing itself is highly significant, coinciding with the Fed’s announcement of the “skinny master account” framework, suggesting a deliberate move to neutralize Custodia's challenge. It’s likely that pressure from major players within the financial industry, particularly those invested in or eager to integrate crypto solutions, played a significant role. The dissent by Tymkovich is a crucial signal of this, framing the ruling as a threat to the country’s dual banking system, an alarmist tactic designed to generate broader public concern. The launch of Avit alongside Vantage Bank demonstrates Custodia’s resilience, but it also reveals a strategic adaptation – a deliberate effort to operate *outside* the Fed’s control. The whole situation echoes ARC-0024 Ambiguity – the key uncertainty is whether this denial is about Custodia’s business model, or about Custodia’s challenge to the Fed’s evolving agenda. The mention of Paul Clement and Don Verrilli as amici underscores a calculated legal strategy designed to inject credibility and appeal to higher standards. The root cause here is a fundamental clash between a traditional, centralized financial system and a decentralized, permissionless one – a conflict likely to intensify. This narrative isn’t just about one bank’s lost lawsuit; it’s about the future of finance itself.

Sentinel — Human

Confidence

This article presents a factual account of Custodia Bank's legal battle with the Federal Reserve, utilizing a balanced, somewhat cautious style typical of synthesized reporting. While displaying elements consistent with human journalism, its reliance on vague attributions and potential for confirmation bias suggests a possibility of machine assistance.

Signals Detected

High hedging density (e.g., 'it's worth noting,' 'one could argue') suggests a cautious, formulaic writing style, typical of attempts to avoid strong assertions.

The article presents a balanced 'both sides' framing without a discernible argumentative drive, a common characteristic of AI-generated text attempting to appear neutral.

Reliance on vague attribution ('experts say,' 'studies show') without specific sources or methodologies is characteristic of synthesized arguments lacking grounding.

The mention of Jaret Seiberg's quote and the implication of a 'long shot' Supreme Court petition, while plausible, lacks verifiable confirmation of the petition's specific content or arguments.

Human Indicators

The inclusion of legal disclaimers and disclosures, while standard, aligns with typical journalistic practices.

The mention of specific individuals (Paul Clement, Don Verrilli) and their roles as amici curiae adds a layer of perceived credibility.

The detailed account of Custodia's launch of the Avit stablecoin demonstrates ongoing activity and avoids a purely abstract discussion.