Custodia Takes Fed Fight to Supreme Court

Custodia Bank filed a petition with the U.S. Supreme Court asking justices to review a 2023 decision by regional Federal Reserve officials to deny the bank a master account. The petition continues a six-year effort by Custodia to gain access to central bank payment services.

Master accounts allow banks to use Federal Reserve payment systems such as Fedwire, FedNow and FedACH to send and receive funds. Banks use those services to settle payments and move money on the U.S. payment network.

The Federal Reserve Board denied Custodia’s master account application in 2023. The Board wrote that the bank’s novel business model and proposed focus on crypto-assets posed “significant safety and soundness risks.” Custodia appealed to the U.S. Court of Appeals for the 10th Circuit, which in 2024 upheld the Federal Reserve Bank of Kansas City’s decision. This year Custodia filed for Supreme Court review and retained law firm Davis Polk to lead the representation.

The petition asks the high court to decide whether regional Federal Reserve Bank presidents have unchecked authority to deny access to payment services. The filing states the case presents “an exceptionally important question: whether regional Federal Reserve Bank presidents possess unbounded, unreviewable discretion to deny disfavored banks access to the Federal Reserve’s payment services.”

The filing argues the denial amounts to an abuse of authority and raises questions about how power is allocated between state-chartered banks and the Federal Reserve system. It also notes potential effects for other institutions with nontraditional or crypto-focused business models seeking access to central bank services.

The Supreme Court will decide in October whether to grant review. If the court agrees to hear the case, the justices would address the scope of authority held by regional Federal Reserve presidents and how that authority interacts with state and federal banking rules for institutions with novel business models.

The petition is the latest action in a multi-year legal dispute over access to Federal Reserve services by firms that combine traditional banking functions with digital-asset activities.