Wyoming Crypto Bank Files Petition Demanding Full Court Review Of Fed Account Denial

What Happened

Wyoming-chartered crypto bank Custodia has filed a petition with the full Tenth Circuit Court of Appeals, seeking reconsideration of the Federal Reserve’s denial of its master account application, escalating a five-year legal battle.

The bank argues that the October panel decision misinterpreted federal law and raises constitutional concerns about the Fed’s authority.

The petition, filed on December 15, requests en banc review, asking all active circuit judges to examine whether regional Federal Reserve Banks can exercise unreviewable discretion over master account access for legally eligible institutions.

The filing raises federalism concerns about the Fed effectively overriding Wyoming’s 2020 decision to charter Custodia as a Special Purpose Depository Institution.

Tymkovich wrote that the Fed’s interpretation grants “unreviewable discretion” that raises “thorny questions” under Article II while contradicting the MCA’s plain language, which requires services to be “available to nonmember depository institutions.“

In an October interview, Waller suggested the Fed can “tailor” account structures to match individual bank risk profiles, undermining the necessity argument for blanket denials.

Market Context

Internal Fed documents revealed that staff deemed Custodia’s capital “adequate” and praised its “impressive” executive team, only for Board of Governors officials to intervene.

Why It Matters

Wyoming created its SPDI framework specifically to attract digital asset companies, requiring 100% reserve backing and prohibiting lending to reduce risk.

The constitutional implications extend beyond federalism.

The Kansas City Fed denied Custodia’s application in January 2023 after 27 months of review, citing risks from its “crypto-asset activities” despite initially telling the bank there were “no showstoppers” with its application.

Federal Reserve Governor Christopher Waller has since acknowledged publicly that the Fed possesses sufficient tools to manage risks without denying master accounts entirely.

Details

Custodia contends the three-judge panel’s 2-1 ruling conflicts with the Monetary Control Act’s mandate that payment services “shall be available” to nonmember depository institutions, creating what it describes as an unconstitutional veto power over state banking charters.

State Banking Authority Under Threat

Without master account access, the bank cannot utilize core Federal Reserve payment services, including wire transfers and automated clearinghouse systems, rendering its state-issued charter largely meaningless despite meeting all statutory eligibility requirements.

“When the Fed denies a master account to a state-chartered financial institution, it effectively vetoes a bank charter that State regulators have approved,” the petition states.

Custodia argues the Fed’s rejection undermines this carefully crafted state regulatory regime designed to foster blockchain innovation within stringent safety parameters.

Custodia’s legal team contends that if regional Reserve Bank presidents hold unreviewable discretion over master accounts, they effectively become “Officers of the United States” wielding significant executive authority without proper constitutional appointment.

Federal Reserve Bank presidents are selected by private bank directors and approved by the Board of Governors, a process Custodia argues violates the Appointments Clause if those officials exercise the discretionary power the majority opinion affirmed.

Deep Judicial Split Emerges

The petition highlights growing disagreement among Tenth Circuit judges on statutory interpretation.

Judge Timothy Tymkovich’s dissent joined Judge Bacharach’s 2017 opinion in Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City, creating a 2-2 split among circuit judges on whether the Monetary Control Act mandates master account access.

OCC Exposes Systematic Crypto Debanking

Custodia’s legal fight unfolds as federal regulators confront widespread debanking practices targeting crypto firms.

The Office of the Comptroller of the Currency released findings in December showing all nine largest national banks imposed “inappropriate” restrictions on lawful businesses, including digital asset companies, between 2020 and 2023.