"Master accounts are the keys to the fiat kingdom. They're the ledger entries that let institutions clear and settle directly at the Fed; without one, a "bank" is functionally just a vault dependent on fickle intermediaries and third-party rails. That practical choke point ( which has been abused by regulators before) gives any discretion over access extraordinary policy significance. Wyoming created SPDIs to pair traditional (but fully reserved) dollar banking rails with segregated digital-asset services."
"Custodia, barred from making loans and required to keep dollar deposits 100% backed by high-quality liquid assets, applied for a master account in October 2020. Early signals from the Kansas City Fed were positive ("no showstoppers"), but after the Board finalized its 2022 access Guidelines, FRBKC treated Custodia as a Tier 3 applicant, the bucket that "generally receive[s] the strictest level of review," and formally denied the account in January 2023. The Board, consulted beforehand, emailed it had "no concerns" with FRBKC communicating a denial."
In a 2-1 decision the Tenth Circuit affirmed denial of a Federal Reserve master account to Custodia Bank, a Wyoming-chartered SPDI designed to combine fully reserved dollar banking with segregated digital-asset services. Master accounts enable direct clearing and settlement at the Fed; without one Custodia remained dependent on intermediaries. Custodia applied in October 2020 and received early positive signals from the Kansas City Fed, but after the Board's 2022 Guidelines FRBKC classified Custodia as a Tier 3 applicant and denied the account in January 2023 with Board consultation. The panel held Reserve Banks retain broad discretion over access and the dissent warned of potentially unreviewable authority.
Read at Bitcoin Magazine
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