Court backs Fed discretion on crypto banking

TLDR

A US appeals court has confirmed that the Federal Reserve can choose which crypto-focused banks get direct access to its payment system.

1. The Tenth Circuit ended Custodia Banks challenge, holding that regional Fed banks have discretion over granting master accounts to applicants.
2. This makes it harder for crypto-native banks to plug directly into Fed payment rails, reinforcing reliance on traditional correspondent banks.
3. Next steps hinge on possible Supreme Court review, new Fed guidance, or legislation that could narrow or codify this discretion.

Deep Dive

1. What The Court Actually Decided

Custodia Bank, a Wyoming-chartered, crypto-focused bank, spent years trying to get a Federal Reserve master account, which provides direct access to Fedwire and other core payment rails.

The Federal Reserve Bank of Kansas City eventually denied the application, and Custodia sued, arguing that the Fed was legally required to grant accounts to eligible depository institutions. A Tenth Circuit panel ruled that Reserve Banks have discretion over these applications, not a hard obligation.

In March 2026, the full Tenth Circuit declined Custodias request for an en banc rehearing, so the prior ruling stands and effectively ends its main legal path in that circuit, as summarized in a detailed community report on how the court ended Custodia Banks legal effort.

2. Why This Matters For Crypto Banking

Without a master account, a crypto bank must route dollar payments through an intermediary bank that does have one. That adds cost, counterparty risk, and regulatory fragility to its business model.

The ruling confirms that the Fed can say no even to state-chartered, fully licensed institutions that meet baseline eligibility, if it judges their risk profile or business model (for example heavy digital-asset activity) as problematic. A separate report notes that the Kansas City Fed has granted a special, more limited form of master account to Kraken, showing that access routes may exist but only on terms the Fed controls and tailors case by case, after it rejected Custodias rehearing bid.

3. What To Watch Next

1. Custodia can try to petition the US Supreme Court, but such appeals are rarely taken. The Tenth Circuits interpretation is now controlling law in its region.
2. Congress could step in with legislation that either requires the Fed to provide master accounts to eligible institutions or explicitly codifies this broad discretion.
3. The Fed itself may issue clearer written standards on how crypto-related activity affects access, especially as more banks experiment with tokenization and stablecoins.

Conclusion

By backing the Feds discretion, the court has reinforced the central banks role as gatekeeper to core dollar payment rails, especially for crypto-centered business models. That does not shut the door on crypto banking, but it means progress will depend on negotiated structures, regulatory comfort with specific risk controls, and potential legislative changes, rather than a guaranteed right of access for every crypto-focused bank.