Key Takeaways
- Custodia Bank filed a reply brief urging the U.S. Supreme Court to review a 10th Circuit ruling.
- Regional Federal Reserve banks gained discretion to block eligible crypto institutions from master accounts.
- If left intact, the Monetary Control Act of 1980 dispute could reshape dual banking system power.
Supreme Court Appeal
Crypto-focused Custodia Bank has issued a renewed plea to the U.S. Supreme Court to take up its battle against the Federal Reserve, per a report from Law360, arguing that only the high court can “put an end to the Fed’s tyranny over financial innovation.”
In a reply brief filed in support of its petition for a writ of certiorari, the bank asked the justices to review a decision from the 10th U.S. Circuit Court of Appeals. The appellate ruling upheld the Federal Reserve System’s discretion to deny master accounts to otherwise statutorily eligible depository institutions.
Custodia contends that the appellate court’s decision improperly equips unappointed regional bank presidents with authority to block “disfavored” banking institutions from accessing core payment rails. Reemphasizing the broader legal and economic stakes, Custodia described the consequences of the decision as “profound.”
The bank stressed that the statutory questions presented have generated “deep disagreement among a range of respected jurists, with thoughtful opinions on both sides of the issue,” making immediate Supreme Court intervention necessary despite the absence of a direct circuit split.
If left intact, the lower court’s ruling threatens to undermine the nation’s traditional dual banking system and severely “cripple” the ability of individual states to foster financial innovation.
“The decision vests extensive regulatory authority in unappointed bureaucrats, creating a judicially sanctioned safe harbor for a newly constituted fourth branch of government,” Custodia asserted in its brief. “The practical stakes are likewise staggering. The Fed’s asserted discretion to deprive depository institutions of master-account access hangs over every bank like a sword of Damocles.”
Statutory Dispute Over the Monetary Control Act
At the center of the dispute is the interpretation of the Monetary Control Act of 1980. Custodia argues that the statute explicitly mandates that the Federal Reserve “shall” make its payment services available to eligible banks, leaving no statutory leeway for regional Reserve Banks to enact policy-based rejections. The Federal Reserve has argued that the absence of the word “all” prior to “nonmember depository institutions” means payment services are only required to be made available to institutions “as a class.”
However, Custodia pushed back against that reading in its reply, pointing out that the Monetary Control Act incorporates a definition of “depository institution” covering “any bank which is eligible” to apply for Federal Deposit Insurance Corporation insurance. Consequently, Custodia argues, the text requires Reserve Banks to open payment services to “any” legally eligible nonmember bank.
Custodia initially sued the Federal Reserve Bank of Kansas City in 2022, alleging undue delay in processing its master account application. It renewed the litigation in early 2023 after the Fed formally rejected the application, citing concerns that Custodia’s risk management framework was inadequate for managing cryptocurrency risks.
A federal judge in Wyoming ruled in favor of the Fed, a decision later affirmed by a panel of the 10th Circuit. However, the appellate panel was split. Circuit Judge Timothy M. Tymkovich wrote a dissent, warning that the majority decision granted the Fed “unreviewable discretion” to deny master accounts and effectively handed central bankers a veto over state chartering authorities.
Since filing its cert petition, Custodia’s position has drawn backing from prominent lawmakers and industry advocacy groups. Former U.S. Sen. Pat Toomey joined U.S. Sen. Cynthia Lummis in an amicus brief. The lawmakers argued that the 10th Circuit misconstrued congressional disclosure mandates as a structural grant of agency discretion.
