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Blockchain Group Asks SCOTUS to Hear Crypto Bank's Fed Case

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Blockchain Group Asks SCOTUS to Hear Crypto Bank's Fed Case

2026-08-18 17:12 UTCBy AlphaScala Research DeskSource reporting: PYMNTSEditorial standards

Blockchain Group Asks SCOTUS to Hear Crypto Bank's Fed Case

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The Blockchain Association warns the 10th Circuit ruling gives the Fed veto power over state bank charters, threatening the dual banking system and lawful crypto businesses.

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The Blockchain Association is pressing the Supreme Court to take up Custodia Bank's fight for a Federal Reserve master account, warning that a lower-court ruling could let federal regulators shut lawful digital asset businesses out of the banking system.

In an amicus brief supporting Custodia's petition for review, the trade group argued the 10th U.S. Circuit Court of Appeals went too far when it ruled that Federal Reserve banks have discretion to deny master accounts even to institutions that are legally eligible for them.

"The decision ratifies the Fed's misuse of its payment services to further an impermissible policy goal: debanking the digital asset industry," the association said.

It warned the ruling could give the Fed "veto power over chartering judgments by state regulators."

Custodia is a Wyoming-chartered special-purpose depository institution focused on digital assets. A master account lets a bank settle payments directly through the central bank instead of routing through an intermediary. Custodia offers digital asset custody and payments settlement to institutional clients, along with stablecoin-related products.

The Kansas City Fed rejected Custodia's application, saying its crypto-focused business model posed undue risks to the banking system. In October 2025, a divided 10th Circuit panel upheld that decision. Eligibility for a master account does not create an entitlement to one, the majority concluded.

"We conclude the plain language of the relevant statutes grants Federal Reserve Banks discretion to reject master account access requests from eligible entities," Judge David Ebel wrote for the 2-1 majority.

The court said accepting Custodia's position would impair the Fed's ability to protect the financial system.

The Blockchain Association is now asking the Supreme Court to embrace the reasoning of dissenting Judge Timothy Tymkovich. Federal law provides that Fed payment services "shall" be available to eligible nonmember depository institutions, he wrote. The association said that language imposes a command on the Fed rather than leaving access entirely to its discretion.

The brief framed the case as involving more than statutory interpretation. Allowing the Fed to deny payment-system access to state-chartered banks undermines the traditional dual banking system, the association said, by letting federal regulators override decisions by state banking authorities.

"Whether federal regulators, based on their own discretionary whims, can intrude on state prerogatives and debank lawful businesses is a question of exceptional importance with broad consequences for the national economy," the brief said.

The association placed Custodia's experience within what the crypto industry has labeled "Operation Choke Point 2.0." It alleged that federal banking agencies under the previous administration used supervisory pressure to discourage regulated banks from serving digital asset businesses. The Custodia ruling could extend similar leverage to state-chartered institutions by making access to the Fed's payment infrastructure discretionary, the association argued.

That argument gives the case potentially broader implications beyond crypto. The 10th Circuit's approach "provides a blueprint for federal regulators to debank disfavored industries or companies in the future without interference from state regulators," the association said.

The regulatory backdrop has shifted since the 10th Circuit ruling. Fed officials have been considering specialized "skinny" master accounts that could provide more limited payment system access to crypto and other innovation-focused institutions.

The Blockchain Association said such policy changes do not resolve the underlying legal issue of whether access ultimately remains subject to the Fed's discretion.

The Supreme Court has not agreed to hear Custodia's case.