Custodia Bank Loses Fed Appeal — Kraken Gets Master Account First

The U.S. Court of Appeals for the 10th Circuit rejected Custodia Bank's final appeal for a Federal Reserve master account in a 7-3 vote. Meanwhile, the Federal Reserve Bank of Kansas City recently granted crypto exchange Kraken a limited master account — the first such access for a crypto company.

End of Custodia's Fight

Custodia Bank, founded in Wyoming by Caitlin Long, had been fighting for a master account since 2022. A master account provides direct access to the Fedwire payment system and Federal Reserve services — without one, a financial institution depends on correspondent banks.

The court ruled that regional reserve banks have unreviewable discretion in granting master accounts, and this discretion is not subject to judicial review. This ruling effectively closes the legal path for crypto banks attempting to gain Fed access through litigation.

The Dissent

Judge Timothy Tymkovich dissented, stating: "Holding that the Reserve Banks have unreviewable discretion over master accounts places us on the wrong side of the statutes and, likely, that of the Constitution as well." Three of ten judges supported Custodia's position, highlighting the legal ambiguity.

Kraken's Breakthrough

Against the backdrop of Custodia's defeat, Kraken achieved what crypto companies had sought for years. The Federal Reserve Bank of Kansas City granted Kraken's banking arm a special limited account — a so-called "skinny" master account. While not a full master account, it provides core access to Fed payment infrastructure.

Kraken became the first crypto company to receive such access. This signals a shift in regulatory approach: instead of outright denial, regulators are offering a compromise path for crypto firms.

The Fed's New Policy

The Federal Reserve Board at the national level is developing a new "skinny" master account policy that could standardize the Kansas City approach for other crypto companies. This potentially opens doors for broader crypto firm access to banking infrastructure without requiring traditional banking licenses.

For participants in the Bitcoin and cryptocurrency exchange market, this means potentially simplified fiat-to-crypto conversion through direct exchange access to Fed payment rails.