Custodia Seeks En Banc Rehearing After Tenth Circuit Upholds Fed Denial of Master Account
Custodia Bank, a Wyoming-chartered cryptocurrency bank, filed an en banc petition at the U.S. Court of Appeals for the Tenth Circuit after a three-judge panel upheld the Federal Reserve’s denial of its request for a master account. Custodia argues the panel misread the Monetary Control Act (MCA), improperly granting regional Reserve Banks “unreviewable discretion” to deny payment services that MCA says “shall be available” to eligible depository institutions. The bank says the denial effectively nullifies Wyoming’s SPDI charter—designed to attract digital-asset firms with 100% reserve rules—and raises federalism and constitutional concerns, including potential Appointments Clause issues if Reserve Bank presidents exercise unchecked executive power. Internal Federal Reserve records reportedly found Custodia’s capital adequate, but the Kansas City Fed denied the application in January 2023 after a 27‑month review, citing crypto-related risks. Custodia emphasizes a circuit split and asks the full Tenth Circuit to resolve conflicting interpretations of the MCA. The petition keeps the dispute over crypto banks’ access to U.S. payments infrastructure active and is being watched by market participants and regulators, since outcomes could influence banking access, custody infrastructure and short-term sentiment for regulated crypto firms.
Bearish
This legal escalation is bearish for crypto firms that rely on regulated banking services. A denial upheld by the Tenth Circuit — and the prospect that regional Reserve Banks hold broad, arguably unreviewable discretion to refuse master accounts — increases counterparty and operational risk for custodial and regulated crypto businesses. In the short term, the ruling and ongoing litigation can reduce market confidence and liquidity for firms dependent on U.S. banking relationships, pressuring sentiment across regulated exchanges and custody providers. It may widen funding spreads, reduce fiat onramps, and cause risk-averse traders and institutions to pull back. Over the long term, outcomes are mixed: a successful en banc reversal could restore access and be bullish for regulated firms, while affirmation of the panel opinion would institutionalize restricted access and prolong structural constraints. Given current posture and the immediate confirmation of the denial by the panel, the near-term net effect is negative for crypto entities tied to U.S. banking infrastructure.