Lawmakers and trade groups urge Supreme Court to rule on Custodia Fed account dispute

A coalition comprising a sitting United States senator, a former senator, and two digital asset industry organisations has petitioned the Supreme Court to resolve a protracted legal battle concerning Wyoming-based lender Custodia’s inability to secure a Federal Reserve master account. The intervention marks a significant escalation in the dispute, with the petitioners arguing that lower court rulings have incorrectly interpreted statutory requirements regarding central bank access for non-traditional financial institutions.

In a brief filed on Thursday, Senator Cynthia Lummis of Wyoming and former Senator Pat Toomey of Pennsylvania challenged the reasoning of the Tenth Circuit Court of Appeals. The lawmakers contended that the appellate judges erroneously inferred that Federal Reserve branches possess the authority to deny master account applications based solely on the existence of the 2022 Toomey Amendment. This amendment mandates the publication of a database detailing the status of every master account request, including whether it has been approved, rejected, pending or withdrawn. Lummis and Toomey asserted that this reporting requirement confers no statutory authority for approval or rejection criteria, noting that Congress typically enacts such mandates when it distrusts an agency’s actions.

The senators highlighted data from the mandated database to illustrate what they described as a two-track system within the Federal Reserve. According to their analysis, among federally insured applicants classified as Tier 1 under Federal Reserve guidelines, 92 out of 111 requests were approved, representing 94 per cent of resolved cases, with a median processing time of 54 days and only one rejection. In stark contrast, among non-federally insured applicants, only three out of 56 requests were approved, accounting for nine per cent of resolved cases, with a median processing time of 648 days.

Custodia initiated legal proceedings against the Federal Reserve in June 2022, citing an excessive delay in processing its application. The lender had waited 19 months for a decision, despite central bank materials indicating that the process typically takes between five and seven business days. Tensions were further exacerbated when the Federal Reserve swiftly approved Bank of New York Mellon to provide custody services for client crypto assets, a move Custodia alleged demonstrated preferential treatment. The Federal Reserve disputed these allegations, subsequently denying Custodia’s application in January 2023. The central bank argued that Custodia’s business model relied too heavily on volatile cryptocurrency markets and lacked adequate controls to manage the risk of illicit finance intrusion. Additionally, the Fed cited Custodia’s limited experience in traditional risk management and the potential systemic implications of granting direct access to a crypto-centred institution.

The lawmakers noted that in December 2025, the Federal Reserve rescinded a 2023 policy statement which had declared crypto-asset activity presumptively inconsistent with safe and sound banking practices. This supervisory position had been announced on the same day Custodia’s applications were denied. Furthermore, in May, the Fed proposed a new type of payment account with fewer services than a full master account but encouraged Reserve Banks to pause decisions on access requests from Tier 3 institutions, such as Custodia, pending an open-ended policy process. This process includes time limits for federally insured applicants but offers no timeline for uninsured institutions.

The petition follows a split decision by the Tenth Circuit Court of Appeals, which upheld the barrier to master account access. Judge Timothy Tymkovich dissented, arguing that the law governing master account access requires payment services to be available to nonmember depository institutions, issuing a command beyond the Fed’s discretion. The Blockchain Association echoed this sentiment in its own petition, stating that the decision ratifies the misuse of payment services to debank the digital asset industry and upsets the balance of federal and state power in banking.

The Digital Chamber argued in a separate brief that denying master account privileges forces financial institutions to rely on private intermediaries whose services can be withdrawn at will. The group warned that this precarious banking environment drives businesses offshore, reducing the United States’ role in global digital asset innovation. The Federal Reserve has until 11 September to file its response with the Supreme Court.