A recent U.S. federal court ruling has dismissed Custodia Bank’s last chance to challenge the Federal Reserve’s control over granting master accounts, effectively concluding the bank’s five-year-long efforts for direct access to the central bank’s payment system.

The U.S. Court of Appeals for the Tenth Circuit announced on Friday that it would not entertain Custodia’s final appeal based on a vote of 7-3.

Custodia initiated its request for a master account in October 2020. This account would enable financial entities to maintain reserves directly at the Federal Reserve and leverage its payment infrastructure, thus facilitating the settlement of transactions without intermediaries.

Following the Fed’s denial of its application, Custodia sought judicial intervention, claiming that the Monetary Control Act grants state-chartered banks access to Federal Reserve services, including the master account.

However, multiple courts have established that the Federal Reserve has discretion in the approval of master account applications.

Custodia’s setback coincides with Kraken Financial, a Wyoming-chartered bank linked to the crypto exchange, marking a historic milestone as the first crypto-centric organization to obtain a master account from the Federal Reserve Bank of Kansas City on March 4.

This master account allows Kraken to connect with the Fedwire payments system, albeit without access to the full suite of services available to traditional banks.

This development has sparked optimism that U.S. regulators might begin to offer limited master accounts to crypto companies.

Dissenting Opinion on the Necessity of Master Accounts

In the court’s proceedings, Judge Timothy Tymkovich presented a dissenting opinion, expressing that a master account is ‘indispensable’ for a bank’s operations, equating the denial of such an account to a ‘death sentence.’

He remarked that three months following Custodia’s application, the Fed had indicated that the bank was eligible and faced no significant obstacles regarding its application.

Tymkovich further contested the notion that Reserve Banks possess discretion over these applications and would have permitted the claim for mandamus to progress.