The Wyoming SPDI divide: Negotiation wins where litigation fails

Wyoming’s crypto banking laws

The Wyoming legislature passed House Bill 74 in 2019 to authorize Special Purpose Depository Institutions. These institutions must maintain 100% reserves of unencumbered liquid assets for all fiat deposits. Kraken Bank, a subsidiary of Payward Inc., became the first digital asset company to receive this charter in September 2020. On March 4, 2026, the Federal Reserve Bank of Kansas City granted Kraken Financial a limited-purpose master account. This permission allows Kraken Financial to connect directly to Fedwire for a one-year term.

Kraken Financial functions as a Tier 3 applicant under the Federal Reserve’s review framework. This status applies to non-federally insured applicants and triggers heightened scrutiny. The account excludes interest on reserves and access to the Fed discount window or emergency lending. You should note that this approval is a pilot for a new "skinny master account" framework. Kraken Financial provides fiat deposit accounts and qualified custody for digital assets. The bank maintains reserves equal to 100 percent of deposits, so it does not require FDIC insurance.

Custodia Bank’s litigation failure

Custodia Bank lost its five-year attempt to force Federal Reserve access through the courts. The Tenth Circuit Court of Appeals affirmed a lower court decision on March 13, 2026, denying Custodia’s petition for rehearing en banc with a 7 to 3 vote, which effectively leaves the central bank’s decision to block access intact. This ruling ended the legal challenge led by Caitlin Long, who founded the bank in 2020. The decision means crypto banks in the Tenth Circuit cannot compel access via litigation.

The Federal Reserve Bank of Kansas City denied Custodia’s application in January 2023 after it languished for over 19 months. Regulators cited concerns about the bank’s focus on volatile crypto markets and insufficient controls for managing illicit finance risks. The Fed determined that Custodia’s risk management for core banking activities was insufficient, particularly regarding compliance with the Bank Secrecy Act and U.S. sanctions laws. The Fed also worried that ownership of Avits, Custodia’s tokenized deposit, would not be limited to customers. This creates a compliance blind spot because persons unknown to the bank could purchase Avits on the secondary market. Custodia argued that the word "shall" in the Federal Reserve Act creates a non-discretionary duty to provide services, but the court disagreed.

Two paths for crypto banks

The divergence between Kraken and Custodia shows that negotiation works better than litigation. Kraken sought a new product through the Fed, while Custodia demanded access as a legal right. Fed Governor Michelle Bowman described the Kraken approval as a pilot for a framework expected in the fourth quarter of 2026. This framework might provide a path for other crypto-native firms to obtain limited access. The New York limited purpose trust company charter is another model for crypto-asset firms. As of June 2022, nine virtual currency businesses operated under that New York charter.

The regulatory stance on digital assets is strict despite these developments. The Federal Reserve Bank of Kansas City maintains that crypto-assets pose money laundering risks because of the ease and speed of transfers. While Kraken operates under the Wyoming Division of Banking, it remains subject to state safety and soundness examinations. The Bank Policy Institute criticized the SPDI model for being unstable during interest rate hikes. They noted that SPDIs invest in liquid assets like investment-grade corporate debt, which can lose value when rates rise. The Bank Policy Institute also pointed out that the minimum capital requirement for an SPDI is only 1.25 to 1.75 percent of assets or 10 million dollars, which falls short of the 7 percent common equity tier 1 ratio for federally supervised banks. Will the proposed skinny master account framework actually reduce the regulatory moat?