Blockchain Association backs Custodia Supreme Court petition

The Blockchain Association filed an amicus brief with the U.S. Supreme Court asking justices to review Custodia Bank’s challenge to the Federal Reserve Bank of Kansas City’s denial of a master-account application. The brief argues federal law requires the Fed to make payment services available to eligible nonmember state-chartered banks and that regional Fed banks do not have unlimited discretion to refuse access.

Custodia, a Wyoming-chartered bank focused on digital assets, applied in 2020 for a master account to obtain direct entry to the Fed’s payment system without using an intermediary correspondent bank. The Kansas City Fed denied the application in 2023. The Tenth Circuit Court of Appeals upheld the denial and in March declined a request for rehearing by a 7-3 vote, leaving the Supreme Court as Custodia’s remaining avenue for review.

A master account gives a depository institution direct access to Fed payment services such as Fedwire, which handles clearing and settlement and reduces reliance on correspondent banks. The Blockchain Association told the court that denying access to an otherwise eligible state-chartered bank can force dependence on third parties and limit the bank’s ability to serve its customers.

The filing arrives amid several developments in crypto firms’ banking ties. In March, the Federal Reserve Bank of Kansas City granted a limited-purpose master account to Kraken Financial. In April, the Office of the Comptroller of the Currency gave conditional approval for Coinbase to form a national trust company. The OCC later granted final approval to Circle’s national trust bank and issued conditional approvals to national trust applications from Ripple, BitGo, Fidelity Digital Assets and Paxos. A parent company related to Kraken also applied for a national trust charter.

Traditional banking groups have raised objections. The Independent Community Bankers of America opposed Coinbase’s conditional approval, arguing crypto firms could seek the benefits of bank charters without being subject to the full regulatory framework that applies to conventional banks.

If the Supreme Court accepts Custodia’s petition, the justices would decide how much discretion regional Federal Reserve Banks have in granting access to the Fed’s payment system and whether federal law requires the central bank to provide services to eligible state-chartered institutions. The petition is pending before the court.