Wyoming SPDI battle and the Federal Reserve master account dispute

The 10th Circuit Court of Appeals affirmed the Federal Reserve’s decision to deny Custodia Bank access to its payment rails in October 2025. This ruling upheld a lower court judgment that granted the Federal Reserve broad discretion to reject master account requests from eligible entities. The court noted that the plain language of the relevant statutes implies that Federal Reserve Banks possess the authority to reject applications from eligible entities. Custodia Bank, a Wyoming-chartered special purpose depository institution, first applied for a master account in October 2020, the same month Kraken applied for its own crypto bank status. Although a Kansas City Fed representative told Custodia in early 2021 that the application featured "no showstoppers," the Fed rejected the application in January 2023 because the firm’s focus on crypto-assets presented safety and soundness risks. Even after Custodia removed stablecoin plans from its business model to address regulatory concerns, the Fed maintained its rejection. Senator Cynthia Lummis stated that the Federal Reserve must ensure Wyoming applicants receive accounts immediately. While Governor Christopher Waller proposed that Wyoming special purpose depository institutions like Custodia and Kraken could receive "skinny" master accounts with limited access, the Federal Reserve maintains broad discretion to reject any application from an entity it deems risky. Judge Timothy Tymkovich issued a dissent, arguing the Fed has gone too far by claiming unreviewable discretion over access to the nation’s financial system.

The fight for FedWire access

Custodia Bank continues its legal pursuit through a petition to the Supreme Court following a 7-3 en banc decision by the 10th Circuit. The bank argues that regional Federal Reserve Bank presidents lack the authority to dictate which banks access payment services. You know how regulators often use delay as a tool, but Custodia claims the Fed’s 19-month silence on its application violated statutory deadlines. The bank’s legal team asserts that the Federal Reserve’s decision to deny access based on crypto involvement amounts to an unlawful executive function. Access to the FedWire network would allow the bank to settle large transactions without paying fees to intermediary banks. The FedWire network handled 200 million transfers for 4,700 member institutions in 2025, following a year where transfers exceeded $1 quadrillion.

The bank views the denial of a master account as a "death sentence" for its business model. In March 2024, a district court judge ruled in favor of the Kansas City Fed, finding the Fed held the authority to deny the application. The bank’s petition to the Supreme Court references the Trump v. Cook and Trump v. Slaughter cases to argue about the limits of the central bank’s executive functions. Will the Supreme Court force the Federal Reserve to grant access to nonmember depository institutions?

New York’s regulatory grip

New York’s Department of Financial Services enforces the BitLicense, a framework established in June 2015 to regulate virtual currency business activity. This regulation imposes significant operational burdens on any company handling crypto for New York residents. In December 2022, the Department of Financial Services issued guidance requiring New York-registered banks to seek approval within 90 days before starting any new or significantly different virtual currency activity. To get this approval, banks must submit a written business plan, a legal analysis, a risk management summary, and corporate governance frameworks. In January 2023, the state also mandated that crypto custodians segregate customer assets from their own holdings to prevent the type of commingling seen in the FTX collapse. The state now expressly permits crypto custodians to take possession of crypto only for the limited purpose of carrying out custody and safekeeping services. The state also requires disclosure regarding how the custodian uses assets while they are in its possession. The BitLicense requires strict compliance with anti-money-laundering and cybersecurity rules. The BitLicense creates a regulatory environment that pushes firms out of the state. Many companies leave New York to avoid these requirements, seeking states with more permissive environments for digital assets.