US court blocks Custodia rehearing while Kraken joins Fedwire

A US appeals court moved ahead to reject a request submitted by Custodia Bank to reconsider its legal challenge against the Federal Reserve. The push was over the access to the central bank’s payment system. The dismissal marks another setback in the bank’s long-running attempt to obtain a master account.

The United States Court of Appeals for the Tenth Circuit voted 7–3 against granting Custodia’s petition for a rehearing before the full court. The request was filed to overturn an October ruling that Reserve Banks have legal discretion to deny master accounts to institutions that are seeking direct access to the Fed’s payment infrastructure.

Fed misread the Monetary Control Act?

On Dec 15, 2025, Custodia filed its petition for rehearing. It argued that the panel misinterpreted the Monetary Control Act of 1980. The bank mentioned that the law grants eligible institutions the right to a master account. However, it also warned that the earlier ruling undermined state banking authority while raising constitutional concerns.

In a split view, Judge Timothy Tymkovich stated that the case carried major implications for financial regulation. He even argued that allowing Reserve Banks unreviewable discretion over master account approvals could conflict with federal statutes and potentially the Constitution. As of now, Custodia hasn’t issued any statement. But it is expected that the bank might continue to pursue access to the Fed’s payment system.

The decision comes in when another crypto-linked institution moves closer to the US financial system. Recently, Kraken announced that it had been granted a master account through its Wyoming-based banking entity. This allowed the exchange to connect directly to the Federal Reserve’s payment rails.

According to reports, Kraken will be able to access systems such as Fedwire through the account. This will enable the exchange to transfer US dollars directly to institutional clients. It added that the system will allow real-time settlement of transactions. This will eventually reduce the need for intermediary banks. The access would initially support institutional client activity. However, it would be rolled out in phases under a one-year approval term.

The approval has now placed Kraken’s banking arm alongside traditional financial institutions that already maintain accounts with the Federal Reserve. Meanwhile, the company highlighted that it would not receive the full range of privileges typically granted to conventional banks.

New framework for crypto on the way?

Crypto firms have been trying to get direct access to the Federal Reserve accounts, as this would allow them to settle payments without relying on intermediary banks. It will lower costs and speed up transactions. At the same time, banks argue that granting payment system access to a crypto-linked entity could introduce new risks into the system.

Custodia even acknowledged the Kraken’s approval in a public statement. It noted that both companies applied for Federal Reserve master accounts in late 2020. Kraken was the first crypto-native firm to apply, while Custodia filed its application shortly after it.

The Wyoming-based bank stated that it has been building stablecoins from inside the bank regulatory perimeter since 2020. It will continue down a dual path of pursuing a Fed master account. This will be done while expanding its collaborations with traditional banks in the tokenized deposit and stablecoin markets.

The Fed is reportedly working on a broader policy framework that could allow crypto companies and other nontraditional financial institutions to access so-called “skinny” master accounts. The proposal remains in early development, and regulators have not said when applications might open.

Amid approvals and rejections, the crypto market posted a mild recovery. Its cumulative market cap surged marginally over the last 24 hours to stand at $2.42 trillion. Bitcoin price is up by more than 3% over the last 7 days. BTC is trading at an average price of $70,789 at the press time.

Want your project in front of crypto’s top minds? Feature it in our next industry report, where data meets impact.