The Blockchain Association has urged the U.S. Supreme Court to review Custodia Bank’s challenge to the Federal Reserve’s denial of a master account, contending that federal law limits the central bank’s ability to refuse payment services to qualifying state-chartered institutions.

In an amicus brief submitted Wednesday, the industry group said a lower-court ruling granted the Fed excessive discretion that could effectively block state-chartered banks from operating independently. Custodia, a Wyoming-chartered institution focused on digital assets, first applied for a master account in 2020. Such an account would allow direct access to Federal Reserve payment services, including Fedwire, without relying on intermediary banks.

Path to the Supreme Court

The Federal Reserve Bank of Kansas City rejected Custodia’s application in 2023. The Tenth Circuit Court of Appeals later upheld that decision, finding the regional Reserve bank possessed discretion to deny the request even if eligibility criteria were met. In March, the full Tenth Circuit voted 7-3 against rehearing the case, leaving the Supreme Court as Custodia’s remaining avenue for review.

The Blockchain Association argued the appeals court interpreted the Fed’s authority too broadly. Federal statutes, the group maintained, require the central bank to make its payment services available to eligible nonmember banks. Allowing wide discretion, the association said, risks giving the Fed a practical veto over state banking charters by withholding the operational tools those institutions need.

Broader Industry Context

The filing connected Custodia’s dispute to what the association and others in the sector describe as “Operation Choke Point 2.0,” a term used for alleged regulatory pressure that has made it more difficult for banks to serve digital-asset clients. The brief stated that under the prior administration, federal authorities employed vague rules, informal guidance and aggressive enforcement to discourage banks from engaging with the industry.

Custodia’s legal battle unfolds as other crypto-related firms have secured greater integration into the U.S. banking system. In March, Kraken Financial received a limited-purpose master account from the same Kansas City Federal Reserve Bank, becoming the first crypto banking unit granted direct Fedwire access. Coinbase obtained conditional approval from the Office of the Comptroller of the Currency in April for a national trust company. Circle secured final OCC approval for its national trust bank in July. Additional conditional approvals have been granted to firms including Ripple, BitGo, Fidelity Digital Assets and Paxos.

Traditional banking groups have raised objections to some of these developments. The Independent Community Bankers of America opposed Coinbase’s conditional OCC approval, arguing that crypto companies seek the advantages of bank status without assuming the full regulatory obligations that apply to conventional banks.

Stakes for Dual Banking System

The Blockchain Association framed the case as a test of the dual banking system, under which both state and federal authorities may charter banks. If the Tenth Circuit’s approach stands, the group warned, federal regulators could override state decisions simply by denying access to the payments infrastructure that state-chartered banks require to function.

The Supreme Court has not yet indicated whether it will accept the petition. Until a decision is made, the scope of the Federal Reserve’s authority over master-account access for eligible institutions remains unsettled.