Blockchain group urges Supreme Court to hear Custodia Bank's Fed access case

The Blockchain Association has urged the U.S. Supreme Court to consider Custodia Bank's legal challenge against the Federal Reserve's refusal to grant it a master account. Such an account would provide Custodia, a crypto-focused bank, direct access to the Federal Reserve's payment systems.

In an amicus brief filed Wednesday, the industry group contended that federal law obligates the central bank to offer its payment services to eligible nonmember banks, asserting that the Fed should not possess unchecked discretion to deny such access. The association stated that the appeals court's ruling effectively grants the Fed veto power over state-chartered banks by allowing it to withhold essential operational services. The group also drew parallels between Custodia's situation and alleged instances of 'debanking' within the digital asset industry under 'Operation Choke Point 2.0,' suggesting federal regulators have discouraged banks from serving the crypto sector.

Custodia, a bank chartered in Wyoming and specializing in digital assets, initially applied for a Fed master account in 2020. The Federal Reserve Bank of Kansas City denied this application in 2023. Subsequently, the Tenth Circuit Court of Appeals affirmed the regional Fed bank's authority to reject the request. In March, the appeals court declined to rehear the case with a 7-3 vote, leaving the Supreme Court as Custodia's final recourse.

The Blockchain Association argued that the Tenth Circuit's interpretation of the Fed's powers is overly broad, potentially enabling the denial of payment-system access to other eligible state-chartered banks serving the cryptocurrency industry. This legal battle unfolds as other crypto firms are increasingly securing access to the U.S. banking system, including federal charters and, in some instances, direct access to Federal Reserve payment rails. For example, Kraken Financial received a limited-purpose master account from the Federal Reserve Bank of Kansas City in March, granting it direct access to Fedwire, a stark contrast to Custodia's rejection by the same institution.