The Blockchain Association has asked the U.S. Supreme Court to weigh in on a high-stakes fight over whether regional Federal Reserve Banks can refuse “master accounts” to state-chartered banks — even when those banks meet the statutory requirements to apply. The move backs Custodia Bank’s petition challenging the Kansas City Fed’s denial of the Wyoming-chartered digital-asset bank’s bid for direct access to the Fed’s payment system. Why this matters - A Federal Reserve master account lets a bank connect directly to central-bank payment services — wire and electronic-transfer networks used to move and settle U.S. dollars. For crypto-focused banks, direct access reduces reliance on correspondent banks and the risk of being cut off from the plumbing of the U.S. financial system. - At stake is whether regional Reserve Banks have broad discretion to deny accounts to otherwise eligible institutions, or whether the Monetary Control Act’s language that Fed services “shall be available” to eligible nonmember depository institutions limits that discretion. What the Blockchain Association argued In an amicus brief filed Wednesday, the industry group urged the Supreme Court to resolve whether regional Reserve Banks can effectively block access for state-chartered institutions that meet legal eligibility. The Association warned that leaving such discretion in place could create a “blueprint for federal regulators to debank disfavored industries” — including lawful digital-asset firms — and stressed that “no lawful industry should be excluded from essential banking services through regulatory pressure or unchecked administrative discretion.” The filing framed the case as central to whether lawful digital-asset businesses can “compete on equal footing” for financial infrastructure access. Case background and procedural history - Custodia, founded by Wall Street veteran Caitlin Long and chartered in Wyoming as a Special Purpose Depository Institution (SPDI), applied to the Federal Reserve Bank of Kansas City for a master account in October 2020. - After more than a year of delay, Custodia sued the Fed and the Kansas City Fed in June 2022. - In January 2023 the Kansas City Fed denied the application, citing safety-and-soundness concerns tied to Custodia’s crypto concentration. - Custodia lost in district court in March 2024, where Chief Judge Scott Skavdahl held the Kansas City Fed had discretion to deny the account. - The Tenth Circuit affirmed the district court, concluding Reserve Banks retain authority to decide who receives master accounts. An en banc rehearing request was denied in March (7–3), with judges Timothy Tymkovich and Allison Eid dissenting, arguing the majority granted Reserve Banks too much unchecked power. - Custodia filed a petition for certiorari with the Supreme Court on July 10; it was docketed July 14 as Custodia Bank, Inc. v. Federal Reserve Board of Governors, et al. Justice Neil Gorsuch had previously granted the bank extra time to file. The Kansas City Fed must respond by Sept. 11. What Custodia is asking the Court to decide Custodia’s petition asks the justices to resolve the Tenth Circuit’s interpretation of the Monetary Control Act — specifically whether the Act’s directive that Fed services “shall be available” to eligible nonmember depository institutions precludes regional Reserve Banks from refusing accounts to otherwise eligible applicants. The petition does not ask the Court to decide whether Custodia itself qualifies for an account. Wider industry context and regulatory developments - The dispute comes as the Fed experiments with more limited forms of access. In March, the Kansas City Fed granted Kraken Financial a limited-purpose master account — the first time a crypto-native firm received direct, though restricted, access to Fed payment rails. Kraken’s account allows settlement via Fed infrastructure but excludes benefits such as interest on reserve balances and access to Fed liquidity facilities like the discount window. - Kraken’s approval drew scrutiny from banking trade groups — including the Independent Community Bankers of America and the Bank Policy Institute — and prompted Rep. Maxine Waters to request details from the Kansas City Fed about the legal basis, conditions, and safeguards (including AML and consumer-protection reviews) attached to the account. - In May, the Federal Reserve proposed a formal category of limited payment accounts that would let fintechs and crypto-linked entities access clearing and settlement services without full banking privileges. The proposed framework would require applicants to operate through an affiliate that qualifies as an eligible depository institution under the Federal Reserve Act. The Fed also asked regional Reserve Banks to pause decisions on Tier 3 master-account applications while it completes rulemaking — a process the Fed expects to finish by Dec. 31, 2026. Kraken’s limited account was approved before that process concluded. Implications A Supreme Court ruling that upholds regional Fed discretion could cement the ability of Reserve Banks — and potentially other federal regulators — to block access for state-chartered institutions operating in industries they view as risky. A contrary ruling could constrain Reserve Bank discretion and make it harder for regulators to deny master accounts to institutions that meet statutory eligibility, shaping how crypto banks and other nontraditional depository institutions access core U.S. payment infrastructure. Next steps The Kansas City Fed’s response is due Sept. 11. If the Supreme Court takes the case, a decision could have broad consequences for the banking options available to crypto firms and the balance of authority between state-chartered banks and regional Federal Reserve Banks. Read more AI-generated news on: undefined/news