A US appellate court has ruled against Custodia Bank, the crypto-focused financial institution founded by Caitlin Long, in its ongoing battle to gain access to the Federal Reserve’s payments network.
In a Friday ruling, a three-judge panel of the US Court of Appeals for the Tenth Circuit affirmed a lower court decision from the District of Wyoming, which had rejected Custodia’s attempt to secure a Fed master account.
Custodia filed the appeal in April 2024, following the district court’s decision that the Federal Reserve was not required to grant the bank direct access. The bank first submitted its application in October 2020, making the legal process stretch more than five years.
This case comes clothed in 21st Century terms: cryptocurrency, digital assets, instant wire transfers, and master accounts,” the judges wrote. “But there is nothing new about this issue. Courts have probed the legality of our nation’s central bank and interpreted the relevant statutes since the founding.
Approval of a master account would have allowed Custodia to transact directly with the US payments infrastructure used by federal agencies and licensed financial institutions — a privilege typically reserved for traditional banks.
Rejection over crypto-related risks
Custodia initially applied through the Federal Reserve Bank of Kansas City, but the Fed rejected the request in 2023, citing risks “inconsistent with safe and sound banking practices” due to the bank’s heavy involvement with digital assets.
Before the rejection, Custodia filed a 2022 lawsuit alleging an “unlawful delay” by the Fed in processing its application a case that underscored tensions between crypto-aligned financial institutions and federal regulators.
The decision represents a major setback for Custodia, which sought to operate under Wyoming’s special-purpose depository institution (SPDI) framework, designed to integrate blockchain-based financial services into traditional banking.
Custodia signals possible rehearing request
Following the court’s decision, it was “actively considering” petitioning the appellate court for a rehearing, citing a dissent that raised constitutional questions about the Federal Reserve’s authority.
While we were hoping for a win at the Tenth Circuit today, we received the next big thing – a strong dissent,” the bank wrote on X (formerly Twitter). “It raised serious constitutional questions about the Federal Reserve and was written by a judge sitting by designation on the panel of a similar case in the Ninth Circuit.
Founded in Wyoming, Avanti Custodia’s original name was among the first “blockchain banks” to emerge under the state’s pioneering crypto-friendly regulations. The company rebranded to Custodia in 2022 as part of its broader push to secure federal banking access.