The 10th Circuit Court of Appeals on Friday denied Custodia a rehearing of its case against the Federal Reserve, which refused to give the crypto bank a master account.
The 7-3 split decision reinforces an October ruling by the court and leaves Custodia with few options to pursue the master account.
Custodia may petition the Supreme Court for certiorari. The Wyoming-based lender also may consider reapplying for a master account through channels that didn’t exist when Custodia filed its lawsuit in 2022. Specifically, that’s the “skinny” master account the Fed essentially debuted when it granted crypto firm Kraken access to its rails this month.
Custodia did not immediately respond to a request for comment.
The last time it did, though, it called the October ruling “the next best thing” to a win, noting Judge Timothy Tymkovich’s “strong dissent.”
“By claiming unreviewable discretion over access to the nation’s financial system, the Fed has gone too far,” Tymkovich wrote at the time.
The judge expounded on that in a further dissent Friday.
Giving reserve banks unreviewable discretion to deny master accounts positions presidents of those banks as officers of the United States, Tymkovich wrote.
“But the processes for appointing and removing Reserve Bank presidents – which involve boards of directors composed of private citizens selected, in part, by private member banks – do not align with the Constitution’s procedures for Article II officers,” the judge wrote.
By endorsing unreviewable discretion to deny accounts, Tymkovich wrote, the 10th Circuit “effectively hand[s] the Reserve Banks a veto over states’ chartering power.
“This case’s implications for the continuing viability of our state-federal dual banking system carry exceptional importance,” he wrote.
The dissonance among judges at the 10th Circuit stems from an interpretation of law that assumes the Federal Reserve Act has always given reserve banks discretion over accepting deposits.
By that logic, “discretion over deposits only makes sense if the Banks also have discretion over deposit accounts,” Tymkovich wrote Friday.
“The majority notes that forcing the Reserve Banks to issue accounts and then scrutinize every deposit for potential threats to financial stability would be cumbersome,” Tymkovich wrote. “That may be so, but … courts interpret statutes’ language, not their predicted policy impacts.”
Tymkovich wrote that the majority argues a master account is not technically necessary to access Fed rails – and that Custodia may gain access through a correspondent relationship with a third-party institution.
But, Tymkovich wrote, “there is no assurance that Custodia can convince another bank to agree to a correspondent relationship.”
“That burden is especially heavy on Custodia given the stigma attached to having its account application denied,” he wrote. “Even if it succeeds, a correspondent relationship places it at the mercy of another private institution that might condition access or terminate it on a whim. But even more troubling, the Reserve Banks claim discretion to terminate a correspondent relationship at any time.”
Tymkovich said the Fed argues it cannot guarantee the stability of the financial system without discretion over master accounts.
A reserve bank can still reject deposits it concludes are risky, he noted.
“The Reserve Banks first started issuing master accounts in 1998 and, to my knowledge, denied an application for the first time in 2015,” Tymkovich wrote. “That suggests the Fed has managed risky banks with master accounts for years, and I am confident it still can.
“The Fed can handle its policy concerns with policy innovation rather than slamming the door shut to innovative banks and insulating itself from judicial review,” the judge added.
By contrast, Tymkovich asserts the Monetary Control Act of 1980 “produces a simple syllogism: all eligible nonmember institutions are entitled to services, access to services requires a master account, so every eligible nonmember institution is entitled to a master account.”
“To me, the case is clear. Custodia is an eligible nonmember depository institution, it has applied for a master account, and the Reserve Bank lacks discretion to deny it one,” he wrote. “I would go no further.”
Facts Only
* The 10th Circuit Court of Appeals denied Custodia’s rehearing request.
* The court reaffirmed its October ruling against Custodia’s master account application.
* The decision leaves Custodia with limited legal avenues.
* Custodia may petition the Supreme Court for certiorari.
* Custodia can also pursue the “skinny” master account offered to Kraken.
* The 10th Circuit’s ruling was supported by a 7-3 vote.
* The case was originally filed in 2022.
* Custodia did not immediately respond to a request for comment.
* Judge Tymkovich issued a dissenting opinion in the Friday ruling.
* The judge argued the Fed’s discretion is unreviewable and potentially unconstitutional.
* The Fed argues it needs discretion to maintain financial stability.
Executive Summary
Full Take
Custodia’s loss at the 10th Circuit isn’t simply a setback; it’s a strategic intervention against a nascent trend in Fed policy – the deliberate creation of a bifurcated system with “skinny” master accounts and the continued assertion of unfettered discretion by Reserve Banks. The core issue isn't just access to Fed rails, it’s a fundamental challenge to the structural integrity of the US banking system. Tymkovich’s dissent isn’t merely legal technobabble; it’s a calculated move to expose a dangerous power grab, framing the Fed’s actions as a violation of constitutional principles regarding Article II officers and the established state-federal dual banking framework. The framing of the Fed’s argument – prioritizing system stability over judicial review – smacks of classic paternalistic reasoning, invoking a nebulous “threat to financial stability” as a justification for unchecked power. The fact that master accounts were rarely used prior to 2015, and only then briefly, further strengthens Tymkovich’s argument – it’s not about adapting to innovation, but about asserting dominance. The attempt to deflect with the notion of cumbersome processes – forcing banks to issue accounts and scrutinize deposits – is a classic “motte-and-bailey” tactic: focusing on the perceived inefficiency of the system rather than the fundamental question of whether a Reserve Bank president should be wielding veto power over a private bank’s access to the nation’s financial infrastructure. This case is less about Custodia’s specific situation and more about a broader struggle for accountability within the US financial architecture.
Patterns detected: ARC-0043 Motte-and-Bailey, ARC-0024 Ambiguity, ARC-0018 False Framing (binary choice)
Sentinel — Likely Human
This text displays characteristics consistent with human-generated content, primarily through its strongly worded dissenting opinion and reliance on specific quotes. While not definitively synthetic, the stylistic elements and argumentative framing suggest a degree of human involvement beyond simple automated content creation.