A Wyoming-based cryptocurrency bank, Custodia Bank, has initiated a new legal challenge against the US Federal Reserve, seeking to reopen its case regarding access to the central bank”s payment system. The petition, submitted to the US Court of Appeals for the Tenth Circuit, claims that the previous ruling by a three-judge panel raised “serious constitutional questions” about the Federal Reserve”s authority.
Custodia is requesting an en banc rehearing, which would involve all active judges reviewing the decision that upheld the Federal Reserve”s denial of the bank”s application for a master account. This denial, first issued in October 2020, prevents Custodia from settling payments directly with the Federal Reserve, forcing it to rely on intermediaries to access the US financial system.
The bank contends that the appellate court”s ruling exaggerated the powers of the Federal Reserve while undermining the authority of state banking regulators. According to Custodia”s petition, the court”s interpretation of the law grants the central bank unchecked power, leading to significant constitutional ramifications as it enables Fed officials—who are not appointed as officers under Article II of the Constitution—to exert control over state-chartered banks.
In its original application, Custodia argued that it met all eligibility requirements set forth by federal law. However, the Federal Reserve denied the application in 2023, leading to the bank”s appeal to the Tenth Circuit. The three-judge panel upheld the Fed”s discretion to deny master accounts even to banks that are state-chartered and federally supervised.
Custodia”s petition challenges the panel”s interpretation of the Monetary Control Act, arguing that the law mandates that central bank services “shall be available” to eligible depository institutions. The bank claims that the panel incorrectly transformed this mandate into a discretionary power for the Fed.
The legal argument continues as Custodia”s attorneys reference a dissent from Judge Timothy Tymkovich, who criticized the majority for endorsing a reading of federal law that allows the Federal Reserve to evade meaningful judicial scrutiny. In his dissent, Tymkovich expressed skepticism about the constitutionality of granting the Fed such unreviewable discretion over access to the financial system.
This ongoing legal battle arises amid a broader trend of various crypto-focused companies, including Crypto.com, Ripple, Circle, and Coinbase, seeking access to the Federal Reserve”s payment infrastructure. Recently, Federal Reserve Governor Christopher Waller noted that companies with special-purpose charters, such as Custodia and Kraken, could be eligible for “skinny” master accounts, albeit with limited access to payment services.
As this case develops, it underscores the tensions between state and federal regulatory frameworks governing the rapidly evolving cryptocurrency landscape.
