Blockchain Association amicus brief urges Supreme Court review of Custodia Bank's Fed master account denial; Kansas City Fed must respond by Sept. 11.
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The Blockchain Association filed an amicus brief Wednesday backing Custodia Bank's Supreme Court petition over the Federal Reserve's master account denial. The crypto industry group asked the justices whether regional Federal Reserve Banks can deny master accounts to state-chartered institutions that are legally eligible to request access.
At issue is the Monetary Control Act, which says Federal Reserve services "shall be available" to eligible nonmember depository institutions. Custodia argues that language makes approval mandatory. Lower courts disagreed, ruling that regional Reserve Banks retain discretion over whether to approve an application.
A master account lets an eligible institution settle directly with the central bank instead of routing transactions through a correspondent bank with its own Fed access. For crypto-focused banks, direct access cuts reliance on third-party banking relationships for moving and settling U.S. dollars. Custodia has argued throughout the litigation that the stakes are highest for state-chartered institutions that otherwise meet the legal requirements to seek Federal Reserve services.
For the Blockchain Association, the stakes extend beyond Custodia. The association warned in its filing that allowing that discretion to stand could affect state-chartered banks serving lawful industries that federal regulators may view unfavorably.
"No lawful industry should be excluded from essential banking services through regulatory pressure or unchecked administrative discretion," the association said in a thread on X.
The association said the case concerns whether "lawful digital asset businesses can compete on equal footing" when seeking access to financial infrastructure. Its brief goes further, arguing that the lower court decisions could provide "a blueprint for federal regulators to debank disfavored industries or companies in the future without interference from state regulators."
Custodia filed its petition for a writ of certiorari on July 10 after Justice Neil Gorsuch granted the bank additional time. The case was docketed July 14 as Custodia Bank, Inc. v. Federal Reserve Board of Governors, et al. The petition asks the justices to review the Tenth Circuit's interpretation of federal law rather than decide whether Custodia currently qualifies for a master account.
Caitlin Long, a Wall Street veteran, founded Custodia. The bank holds a Wyoming Special Purpose Depository Institution charter and applied to the Kansas City Fed for a master account in October 2020. More than a year passed with no decision. Custodia sued the Federal Reserve Board and the Kansas City Fed in June 2022, challenging what had become a 19-month delay.
The Kansas City Fed denied the application in January 2023, citing safety and soundness concerns tied to Custodia's crypto-focused business model and its concentration in digital asset activities. Custodia argued that federal law gives no regional Reserve Bank unlimited discretion to withhold a master account from an otherwise eligible institution.
A federal district court rejected that position in March 2024. Chief Judge Scott Skavdahl ruled that the Kansas City Fed had the legal authority to deny the application and refused to compel access to the central bank's payment infrastructure.
Custodia appealed. The Tenth Circuit again sided with the Fed, concluding that Reserve Banks keep authority to determine whether an eligible institution receives a master account. In March, the full appeals court denied Custodia's request for an en banc rehearing by a 7-3 vote, leaving the earlier ruling intact. Judges Timothy Tymkovich and Allison Eid dissented, arguing that the majority gave Reserve Banks unchecked authority over state-chartered institutions.
Court records from the rehearing described master account access as "indispensable" to a bank's operations because Reserve Bank services include the wire and electronic transfer systems that depository institutions use to move money.
Custodia's case kept moving through the courts while another Wyoming-chartered crypto institution secured the access Custodia was denied. The Kansas City Fed granted Kraken Financial a limited-purpose master account in March, making the crypto exchange's banking arm the first crypto-native institution to connect directly to Federal Reserve payment rails.
The account lets Kraken Financial use the Federal Reserve payment infrastructure for dollar settlement without the full benefits of a conventional master account. It does not include interest on reserve balances or access to the Fed's liquidity facilities.
Banking trade groups questioned the approval. The Independent Community Bankers of America and the Bank Policy Institute raised concerns about allowing a Wyoming SPDI without federal deposit insurance to access Fed infrastructure directly.
Representative Maxine Waters later asked Kansas City Fed President Jeff Schmid for details. Her request covered the Federal Reserve services Kraken Financial can use and the conditions attached to the account. She also sought the legal basis for the decision and any anti-money laundering and consumer protection reviews tied to it.
A formal route for restricted access is under consideration. In May, the Federal Reserve proposed a category of limited payment accounts that would let eligible fintech and crypto-linked institutions use clearing and settlement services without the full privileges of conventional banks. The proposal requires an applicant to operate through an affiliate that qualifies as an eligible depository institution under the Federal Reserve Act.
Regional Reserve Banks were also told to pause decisions on Tier 3 master account applications during the review period. The Fed expects the rulemaking to conclude by Dec. 31, 2026. Kraken Financial's limited account predates the proposal.
The Federal Reserve Bank of Kansas City is due to respond to Custodia's petition by Sept. 11.
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