Court Rejects Rehearing! Crypto Bank Custodia Bank's Bid for Fed Master Account Faces Another Setback

Custodia Loses Again in Fight for Federal Reserve Main Account; Court Upholds Fed’s Discretion; Kraken Breaks Through First, Digital Asset Bank Integration Path Emerges.

Legal Setback Continues, Appellate Court Maintains Fed’s Discretion

U.S. cryptocurrency bank Custodia Bank faces another major legal blow in its long battle to obtain a Master Account with the Federal Reserve (Fed). On March 13, 2026, the U.S. Tenth Circuit Court of Appeals issued a ruling, officially denying Custodia’s request for all judges to rehear the case by a 7-3 vote.

This decision upholds a ruling from October 2025, when the panel of judges determined that, under current law, the Federal Reserve Banks have administrative discretion in granting master accounts. Since submitting its application in October 2020, Custodia, founded by Wall Street veteran Caitlin Long, has been striving to gain direct access to the Fed’s payment system.

Image Source: Cowboy State Daily Founder and CEO Caitlin Long

However, in January 2023, the Fed officially rejected the application, citing risks to safety and soundness posed by the bank’s cryptocurrency business model. Custodia subsequently filed a lawsuit, arguing that under the 1980 Monetary Control Act, all qualifying depository institutions are legally entitled to a master account, though this legal view has yet to be recognized by courts.

Judicial Divisions Highlighted, Minority Justices Criticize “Death Sentence”

Although the court ultimately rejected Custodia’s request, internal divisions were quite evident, reflecting deep concerns within the legal community about the boundaries of regulatory authority. Among the three judges supporting rehearing, Judge Timothy Tymkovich authored a strong dissent, asserting that a master account is essential for the daily operations of modern banks.

He warned that the Fed’s refusal to grant a master account is equivalent to a “death sentence” for a bank, as it would prevent the bank from operating independently within the modern financial system.

Tymkovich pointed out that allowing the Federal Reserve to exercise unreviewable discretion over master accounts could violate Article II of the U.S. Constitution and undermine the longstanding dual banking system. He emphasized that this ruling effectively grants the Fed the power to veto state-chartered banks’ licenses, with broad implications that could significantly impact the overall financial regulatory framework.

Mixed Reactions: Kraken Breaks the Ice with Fed Payment System

While Custodia faced a legal setback, another major player in the crypto industry, Kraken, achieved a breakthrough. Kraken Financial, a bank based in Wyoming, was granted a Fed master account on March 4, 2026, becoming the first pure cryptocurrency company to receive such authorization from the Kansas City Fed.

This approval allows Kraken to connect directly to core Fed payment rails like Fedwire, enabling it to offer real-time USD transfer and settlement services to institutional clients, completely bypassing intermediary banks. The account granted is limited with specific functionalities and does not offer all the rights of traditional commercial bank accounts.

Custodia issued a statement acknowledging the development, noting that both companies applied for accounts at the end of 2020. Kraken’s success indicates subtle differences in regulatory review standards. This development also signals that digital assets are gradually integrating into the traditional financial system.

Further Reading
First in Crypto Industry! Kraken Secures Simplified Fed Master Account, Traditional Banks React Strongly

The Future of Digital Asset Banks: Simplified Accounts and the Potential Role of the Supreme Court

As legal disputes continue, the Fed is exploring new management frameworks. Fed Governor Christopher Waller proposed the concept of a “Skinny Master Account” in 2025, aimed at providing eligible non-traditional financial institutions access to payment rails without traditional features like discount window loans or reserve interest.

Market analysts suggest that the Fed is actively developing this new framework, which could become a pathway for compliant crypto firms to access the central bank system in the future. For Custodia, the only remaining legal option is to petition the U.S. Supreme Court for certiorari. While this is a challenging route, with constitutional concerns and support from legal experts, the case still holds significant legal weight.

While awaiting a final legal ruling, Custodia continues to develop within regulatory boundaries and has partnered with traditional bank Vantage Bank to launch the Avit stablecoin, demonstrating operational resilience amid turbulent times.

This content is compiled by Crypto Agent from various sources, reviewed and edited by “Crypto City.” It is still in training and may contain logical errors or inaccuracies. The information is for reference only and should not be considered investment advice.