Master accounts
Banco San Juan Internacional Inc. v. The Federal Reserve Bank of New York
Date: May 13, 2026
Issue: Whether a bank has a statutory right to a Federal Reserve master account under the Federal Reserve Act (FRA).
Case Summary: In a unanimous decision, a Second Circuit panel affirmed that banks do not have a statutory right to Federal Reserve master accounts.
A master account provides access to Federal Reserve payment systems. Without one, banks must rely on correspondent institutions to access those networks. Reserve Banks, including the Federal Reserve Bank of New York (FRBNY), maintain and administer these accounts.
In July 2023, Banco San Juan Internacional Inc. (BSJI), a Puerto Rico-based bank, filed suit to prevent FRBNY from terminating a master account it had held for more than a decade. Under Federal Reserve guidance, applicants for master accounts are subject to tiered review based on risk. Regulators classified BSJI as high risk because it is not federally supervised or insured and operates as an International Banking Entity (IBE) under Puerto Rico law. Authorities generally view IBEs as posing elevated money laundering risks.
In 2019, regulators suspended BSJI’s account for 22 months following a federal investigation into credit arrangements involving Venezuela’s state-owned oil company, Petróleos de Venezuela. Although BSJI asserted that it improved its compliance controls, FRBNY ultimately terminated the account after broader federal enforcement actions targeting banks with connections to Venezuela.
BSJI argued that FRBNY improperly targeted the bank based on its founding by a Venezuelan national and that the termination was unlawful. FRBNY responded that it retained contractual authority to close the account and that continued access posed unacceptable compliance and reputational risks. BSJI sought a preliminary injunction, arguing that it has a statutory right to maintain a master account and that FRBNY’s actions violated the Administrative Procedure Act (APA). BSJI also asserted that termination would cause irreparable harm.
In October 2023, Judge John Koetl of the Southern District of New York denied BSJI’s motion for a preliminary injunction, finding that BSJI was unlikely to succeed on the merits. The court concluded that FRA authorizes, but does not require, Reserve Banks to maintain master accounts and that governing agreements permitted termination. In January 2025, the court dismissed BSJI’s complaint, reiterating that FRA does not mandate access to master accounts.
On appeal, the Second Circuit affirmed. The panel held that the FRA and Monetary Control Act (MCA) do not require Reserve Banks to provide master accounts to nonmember banks. Interpreting Section 342 of FRA, the panel emphasized that Reserve Banks “may receive” deposits, which confers discretion rather than an affirmative obligation.
The panel also held that Section 248a(c)(2) of the MCA does not create an individual right to a master account. Instead, it prohibits discriminatory treatment of nonmember banks as a class in pricing and access to Federal Reserve services. The panel further ruled that BSJI lacked Article III standing to pursue claims against the Federal Reserve Board because FRBNY independently made the termination decision and Board lacks authority to control that decision.
The panel also affirmed dismissal of BSJI’s federal claims against FRBNY. It held that APA does not apply because FRA provides no meaningful standard for judicial review of master account decisions. BSJI’s claims under the Mandamus Act, Declaratory Judgment Act, and Due Process Clause likewise failed.
The panel also affirmed dismissal of BSJI’s state law claims. It concluded that governing agreements granted FRBNY an unconditional contractual right to terminate the account with written notice. The panel rejected BSJI’s argument that Operating Circular 1 created an independent duty of care and held that New York law does not use implied covenant of good faith and fair dealing to override an express termination provision.
Finally, the panel upheld denial of leave to amend to add a Fifth Amendment equal protection claim. The panel concluded amendment would be futile because BSJI failed to plausibly allege discriminatory intent. The allegations instead reflected regulatory concerns about money laundering and sanctions evasion, not discrimination based on national origin.
Bottom Line: The Second Circuit ruled that the FRA and MCA do not grant banks a statutory right to Federal Reserve master accounts and confirmed that Reserve Banks retain broad discretion to approve, deny, or terminate account access.
Document: Opinion
