Court backs Fed's refusal to let fintech access payment rails

A federal appeals court dealt a blow to crypto banks seeking access to the Federal Reserve's payment rails. In a two-to-one decision the U.S. Court of Appeals for the Tenth Circuit, in Denver, affirmed a decision by the U.S. District Court for the District of Wyoming that the Federal Reserve Bank of Kansas City had the authority to deny a request by Custodia, a crypto bank, for a so-called master account with the Reserve Bank.

Every insured financial institution that clears payments through the Federal Reserve Bank System must hold a master account at its local Reserve Bank. Reserves held in these master accounts are used to settle payments. Master accounts are highly sought after by financial technology firms (like crypto banks) that otherwise must partner with banks that have master accounts to clear and settle payments.

Too risky for membership

Custodia Bank, based in Cheyenne, Wyo., is a state-chartered special-purpose depository institution specializing in cryptocurrencies. The state-issued charter allows Custodia to accept deposits, custody services and engage in other banking activities, including payments. But because it is not a member of the Federal Reserve, it needs to partner with a member bank to clear and settle payments through the Fed.

Custodia applied for a master account with the Federal Reserve Bank of Kansas City, which rejected the application. Despite agreeing that Custodia was statutorily eligible for an account, the Kansas City Fed said the bank's crypto-focused business model introduced undue risk into Fed-operated payment systems and services.

Custodia files suit

On June 7, 2022, Custodia sued the Kansas City Fed and the Federal Reserve Board in U.S. District Court for the District of Wyoming. The bank argued that the Reserve Banks do not have any discretion over which institutions get Fed accounts and services.

The district court disagreed, granting on March 29, 2024, granting summary judgment in favor of the Federal Reserve Bank of Kansas City and deny Custodia's claim that the Fed's decision was arbitrary and capricious, and therefore in violation of the Administrative Procedure Act, the federal law that sets out how federal administrative agencies (like the Fed) propose regulations and issue rulings.

Custodia filed an appeal on April 26, 2024. The appeals court ruled against Custodia on Oct. 31, 2025. "We conclude the plain language of the relevant statutes grants Federal Reserve Banks discretion to reject master account access requests from eligible entities and, therefore, we reject Custodia's attempt to impair the Fed's ability to safeguard our nation's financial system through the exercise of discretion to reject master account access," the majority opinion stated.

Banks cheer decision

Banking groups cheered the court's decision. The ruling "preserves the Federal Reserve's role in protecting the integrity and stability of the U.S. financial system," said Romero Rainey, president and CEO of the Independent Community Bankers of America.

"Community banks operate under a robust framework of federal oversight, capital standards and deposit insurance – all designed to protect consumers and maintain trust," Rainey said in a prepared statement. "Extending the privileges of master account access to entities that are not subject to the same regulation as community banks would have undermined that stability."

Rainey added that the ruling "ensures our nation's payment systems remain safe, sound and resilient.

The skinny on a different kind of master account

The Fed's position on fintechs like crypto banks accessing its payment rails isn't cast in concrete, however. On Oct. 21, 2025, Fed Board Governor Christopher Waller said he asked the Board staff to "explore" the idea of "skinny" master accounts that would provide basic payment services to these fintechs, including crypto banks.

"[W]e are well into a technology-driven revolution in payments, and I am here to say that the Federal Reserve intends to be an active part of that revolution," Waller said in remarks to a payments symposium put on by the Fed Board.

Skinny master accounts, as envisioned by Waller, would not come with all the trappings of full-fledged master accounts. For example, balances likely would be capped, and the Fed would not pay interest on those balances.

"There are many eligible firms engaged in substantial payments activities that may not want or need all the bells and whistles of a master account, or access to the full suite of Federal Reserve financial services, to successfully innovate and provide services to their customers," Waller said. "The idea is to tailor the services of these new accounts to the needs of these firms and the risks they present to the Federal Reserve Banks and the payment system."

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