A U.S. federal appeals court has ended Custodia Bank’s attempt to obtain a Federal Reserve master account, closing one of the most closely watched legal fights between a crypto focused bank and U.S. regulators. The United States Court of Appeals for the Tenth Circuit denied Custodia’s request for a rehearing by the full court, which means the earlier ruling against the bank will remain in place. As a result, the decision confirms that regional Federal Reserve Banks have discretion when deciding whether to grant master accounts. The case centers on access to a master account at the Federal Reserve. Such accounts allow banks to connect directly to the central bank’s payment infrastructure. Without one, institutions must rely on intermediary banks to process transfers and settlements. Custodia Bank’s Master Account Fight Custodia applied for a master account with the Federal Reserve Bank of Kansas City in October 2020. The Wyoming chartered institution was created to provide services to the digital asset sector and sought direct access to the Fed’s payment system. However, the Kansas City Fed did not approve the application. Instead, the process stretched over several years before regulators formally rejected the request in early 2024. Custodia then filed a lawsuit, arguing that federal law required the Fed to provide master accounts to eligible banks. The bank claimed that denying access effectively blocked its business model. According to the filings, a master account would allow Custodia to settle payments directly with the central bank rather than routing transactions through another financial institution. Appeals Court Backs Federal Reserve Authority The dispute eventually reached the Tenth Circuit, which reviewed whether the Federal Reserve had a legal obligation to grant the account. In its earlier decision, a panel of judges ruled that Reserve Banks maintain discretion when reviewing applications. Custodia later asked the court to rehear the case en banc, meaning the full bench would reconsider the ruling. However, the appeals court declined that request in March 2026. Consequently, the panel’s earlier interpretation now stands as the controlling decision in the circuit. The order also revealed that several judges supported reconsideration. Nevertheless, the majority voted against reopening the case. With the rehearing request denied, the decision strengthens the Federal Reserve’s position that it can independently evaluate whether institutions receive direct access to its payment rails. The ruling marks a significant moment in the debate over crypto related banking access. At the same time, it highlights the regulatory challenges facing financial institutions built around digital asset services in the United States.
