Custodia Bank Loses Appeal in Federal Reserve Master Account Case

A U.S. appellate court has ruled against Custodia Bank, the crypto-friendly institution founded by Caitlin Long, upholding a lower court decision that the Federal Reserve is not required to grant it a master account. The ruling, issued on October 31, 2025, by the Tenth Circuit Court of Appeals, affirmed a 2023 district court judgment in Wyoming, which found that the Fed retains discretion over access to its payment system.

Custodia first submitted its application for a master account in October 2020 through the Federal Reserve Bank of Kansas City. After delays, the Fed rejected the application in 2023, citing risks "inconsistent with safe and sound banking practices" due to the bank's focus on digital assets. Custodia filed a lawsuit in 2022 alleging unlawful delay, and after the initial ruling against it, the bank appealed in April 2024.

The appeals court emphasized that the Federal Reserve Act does not compel the central bank to approve such applications, and the decision reinforces the Fed's authority to limit direct access to its infrastructure. In a statement, Custodia indicated it is "actively considering" petitioning for a rehearing, noting a strong dissent in the ruling that raised constitutional questions about the Fed's powers.

Custodia, originally established as Avanti in Wyoming under a state-level regulatory framework, rebranded in 2022 and operates as a special purpose depository institution (SPDI). This model requires 100% reserve backing for customer fiat deposits but has faced federal resistance. The case was seen as a test for crypto banks seeking integration into the U.S. financial system, and the outcome leaves Custodia reliant on intermediary banks for payment services.