Crypto group backs Custodia in Supreme Court battle over Fed access

The Blockchain Association argues the Fed should not have broad discretion to deny eligible state-chartered banks direct access to its payment system.

The Blockchain Association urged the US Supreme Court to hear Custodia Bank’s challenge to the Federal Reserve’s denial of its application for a master account, which would give the crypto-focused bank direct access to the Fed’s payment system.

In an amicus brief filed Wednesday, the industry group argued that federal law requires the central bank to make its payment services available to eligible nonmember banks and that the Fed should not have broad discretion to deny access.

The association said the appeals court’s decision effectively gives the Fed veto power over state-chartered banks by allowing it to withhold services needed to operate independently. It also linked Custodia’s case to alleged crypto debanking under “Operation Choke Point 2.0,” arguing that federal regulators discouraged banks from serving the digital asset industry.

Custodia, a Wyoming-chartered bank focused on digital assets, applied for a Fed master account in 2020, seeking direct access to the central bank’s payment services without relying on an intermediary bank.

The Federal Reserve Bank of Kansas City denied Custodia’s application in 2023, and the Tenth Circuit Court of Appeals later ruled that the regional Fed bank had discretion to reject its request. In March, the appeals court voted 7-3 against rehearing the case, leaving the Supreme Court as Custodia’s only remaining avenue for review.

The Blockchain Association said the Tenth Circuit interpreted the Fed’s authority too broadly, potentially allowing it to deny payment-system access to eligible state-chartered banks serving the crypto industry.

Blockchain Association backs Custodia’s Supreme Court petition. Source: US Supreme Court filing

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Custodia’s challenge comes as other crypto companies are gaining greater access to the US banking system, including federal charters and, in one case, direct access to Federal Reserve payment rails.

In March, Kraken Financial became the first crypto banking unit to receive a limited-purpose master account from the Federal Reserve Bank of Kansas City, giving it direct access to Fedwire. The approval contrasts with Custodia’s rejection by the same regional Fed bank in 2023.

In April, Coinbase received conditional approval from the Office of the Comptroller of the Currency (OCC) to establish a national trust company, bringing its custody business under federal oversight without allowing it to take retail deposits or operate as a commercial bank.