Master Account
Custodia Bank v. Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City
Date: Oct. 31, 2025
Issue: Whether the Federal Reserve and the Federal Reserve Bank of Kansas City (the agencies) violated the Administrative Procedure Act (APA) by illegally delaying Custodia Bank’s application process to deny critical payment services.
Case Summary: In a 2-1 decision, a Tenth Circuit panel ruled that Federal Reserve banks can reject master account requests from legally eligible entities.
Custodia is a Wyoming-chartered special-purpose depository institution. These charters allow companies to accept deposits, provide custody services, and engage in other banking activities such as payments. A master account is a type of bank account granting access to the Federal Reserve’s payment networks. Without this account, banks must rely on a partner bank for access. Master accounts are highly sought after by fintech firms trying to avoid added costs and risks associated with these partnerships.
Custodia sued the agencies, alleging they unlawfully refused to act on its master account application. Custodia claimed it submitted a valid application for a master account to the Kansas City Fed, but the agencies illegally delayed the application process. According to Custodia, the agencies must take final action on an application within one year under 12 U.S.C. § 4807. However, the district court ruled that the Kansas City Fed was not required to grant Custodia’s request for a master account, even though it was legally eligible, and that Custodia lacked standing because it did not challenge a final agency action under the APA.
On appeal, ABA filed a coalition amicus brief urging the Tenth Circuit to affirm, arguing the Fed has clear statutory discretion to grant or deny a master account. ABA emphasized the statutes clearly grant Federal Reserve Banks this discretion and warned that removing this authority would compromise the safety and integrity of both Federal Reserve services and the broader system.
The panel agreed and affirmed the district court’s decision. Writing for the majority, Judge David Ebel explained Custodia’s APA claim against the Fed failed because no final agency action existed. Custodia argued the Fed unlawfully influenced the Kansas City Fed’s denial of its master account application, relying on a Fed email saying it had “no concerns” with the Reserve Bank moving forward. Rejecting this argument, the majority concluded the email did not determine any rights, impose obligations, or create legal consequences as the APA requires. Instead, the email was advisory input and left the Kansas City Fed with full authority to make the final decision. The majority observed that the statutes and the Fed’s Guidelines give Reserve Banks, not the Fed, the power to grant or deny master account requests. Because the record showed the Kansas City Fed made the final decision, the email did not change Custodia’s legal position and did not qualify as a reviewable final agency action under the APA.
The majority also concluded Custodia is not entitled to a nondiscretionary master account from the Kansas City Fed. The majority reasoned Section 342 of the Federal Reserve Act gives Reserve Banks discretion to receive deposits, which includes discretion to approve or deny master accounts. The majority rejected Custodia’s reliance on a single clause in Section 248a(c)(2) of the Monetary Control Act. Section 248a(c)(2) declares that Fed services “shall be available to nonmember depository institutions. But the majority noted that the provision governs pricing rules for services, applies only to the Fed’s Board of Governors, and does not guarantee account access. In the majority’s view, Congress would not erase long-standing Reserve Bank discretion through a brief phrase buried in a pricing statute. The Toomey Amendment confirmed this view by requiring the Fed to disclose whether applications are “approved, rejected, pending, or withdrawn,” showing Congress expected some eligible entities to be denied.
Finally, the majority concluded Custodia’s counterarguments were unavailing. Custodia argued that the majority’s interpretation renders the “services … shall be available to nonmember depository institutions” clause in Section 248a(c)(2) meaningless. Custodia also argued that the absence of the word “all” before “nonmember depository institutions” is not probative of congressional intent and that Section 248a(c)(2) would have the same meaning even if Congress had inserted the word “all.” The majority explained, however, the clause was designed to open Federal Reserve services to non-member institutions as a class, not to guarantee every eligible entity a master account. To support its reasoning, the majority highlighted Congress’s deliberate use of the word “all” elsewhere in Section 248a.
In dissent, Judge Timothy Tymkovich theorized the Fed had “gone too far” by claiming unreviewable discretion over access to the nation’s financial system. He warned that the majority’s interpretation allowed unelected bank officials to wield significant executive power without meaningful oversight. He also questioned whether the Constitution permits such unchecked authority and said that he would reverse the decision.
Bottom Line: The Tenth Circuit held that Reserve Banks are not required to grant master account access to every eligible institution.
Document: Opinion
