The Federal Reserve requires master accounts in order for a federally chartered bank to use the Fed’s services. The bank was a Wyoming-chartered special purpose depository institution, but under the applicable state law it could not issue loans and must fully back all deposits with liquid assets. It otherwise operates similarly to any other bank. The bank sought to use the Federal Reserve’s services, specifically a master account, and applied to become an official member of the Federal Reserve. During its application, the Federal Reserve Board issued a new framework for evaluating applications from institutions with novel charters, including the bank here. Because the bank specialized in instant wire, cryptocurrency, and other digital asset transfers, it argued that the Federal Reserve’s own framework granted it entitlement to a master account. The Federal Reserve rejected the bank’s application under the new framework. Absent this framework, the bank’s application would likely receive agency approval. The bank filed suit, alleging that the Federal Reserve violated the Administrative Procedure Act (APA), and sought a writ of mandamus to compel the approval of the application. The bank also sought a declaratory judgment regarding the Federal Reserve’s statutory obligation to provide the bank with a master account. The bank amended these claims to allege that the Federal Reserve Act (FRA) and the Depository Institutions Deregulation and Monetary Control Act (MCA) entitled the bank to the master account. The District Court of Wyoming granted summary judgment in favor of the Federal Reserve, ruling that no genuine dispute existed as to “whether [the bank] was statutorily entitled to a master account or whether, instead, the [Federal Reserve] had discretion in granting master accounts.” On appeal, the issues concerned whether a final agency action occurred as required to bring an APA claim and whether the FRA, MCA, and the MCA’s Toomey Amendment entitled the bank to a master account.
In Custodia Bank, Inc. v. Fed. Rsrv. Bd. of Governors, 157 F.4th 1235 (10th Cir. 2025), the Tenth Circuit first determined that the bank’s APA claims failed due to the absence of a final agency action. Under the test in Bennett v. Spear, an agency must “(1) ‘mark the consummation of the agency's decision-making process—it must not be of a merely tentative or interlocutory nature’; and (2) ‘be one by which rights or obligations have been determined, or from which legal consequences will flow.’” 520 U.S. 154, 177–78 (1997). The court ruled that the Board’s email did not satisfy the second prong of the test because the final decision rested with the Reserve Bank. The court next considered § 342 of the FRA regarding the scope of granted discretion, § 248a of the MCA regarding whether the Federal Reserve must grant the bank a master account, and the MCA’s Toomey Amendment regarding whether it independently required such a grant. The court affirmed the district court’s findings on all claims. After briefly discussing the constitutionality of the rule itself, the court concluded the framework did not violate the final agency action restriction. Because § 342 of the FRA provides that “[a]ny Federal reserve bank may receive...” (emphasis added), the court interpreted the term “may” as a grant of broad discretion to Reserve Banks. Therefore, the Reserve Bank had no obligation to grant the bank a master account under the statute. In effect, even if the bank attained full membership of the Federal Reserve, the bank would not necessarily possess entitlement to a master account. However, § 248a(c)(2) of the MCA provides that “services covered by the fee schedule shall be available to nonmember depository institutions...” (emphasis added). This phrase, the majority held, did not restrict the Reserve Bank’s discretion to require it to grant the bank a master account because “services” as used in §248a relate only to the pricing of the services and prohibited discrimination against member and nonmember institutions in that regard. It did not entitle the bank to a master account, only equal pricing for the services provided. The court also acknowledged that Congress did not intend to interfere with or alter the fundamentals of federal banking regulation, particularly where the MCA did not regulate the Federal Reserve Banks, just the Federal Reserve Board. The court concluded that the plain language of § 248a only implied a right to access for nonmember institutions as a class, noting that the statute did not include the word “all” before “nonmember institutions” while including it earlier in relation to “Federal Reserve Bank Services.” In concluding that the lack of the modifier distinguished the phrases, the court ruled that each nonmember could not automatically receive all services, including master accounts. Finally, the court analyzed the Toomey Amendment’s requirement that the Federal Reserve identify and report the status of every application—including a rejection—of a master account and specify the entity types. Each entity specified was eligible for a master account. Therefore, the court ruled that the Toomey Amendment granted the Federal Reserve discretion to reject an application submitted by an eligible entity. That amendment, which was passed in 2022, requires the Federal Reserve Board to establish a "public, online, and searchable database" tracking all master account requests and listing whether the request "was approved, rejected, pending, or withdrawn." 12 U.S.C. § 248c(b)(1)(B)(ii). In light of the meanings and purposes of the statutory provisions individually and when interpreted as a whole, the law did not require the Reserve Bank to grant the bank a master account, and the court rejected the bank’s arguments to the contrary.
The dissenting opinion addressed the nondelegation issue and the scope of the Federal Reserve’s discretion. Specifically, the dissent reasoned that the unelected nature of the Federal Reserve Board obligated the Federal Reserve to grant a master account to the bank. Relying on § 248a, the dissent argued that § 248a(b)(8)’s “any new services” provision covered master accounts. Because none of the enumerated services regarded accounts, the dissent concluded the master account necessarily fell into the “any new services” provision as a necessary prerequisite. Similarly, the dissent rejected the majority’s contextual interpretation of “Pricing of services,” as a guide to the section’s general idea, instead favoring a plain meaning approach to the language of that section. The dissent rejected the majority’s reading of “all” and its omission with nonmember institutions as innocuous and a grammatical convention, rather than requiring a strict statutory interpretation. Similarly, the dissent interpreted § 342 as giving the authority to federal banks to accept deposits; however, it held that the Federal Reserve does not retain a broad authorization to deny eligible institutions a master account. It concluded by expressing doubt about the authority of the Fed to appoint Reserve Bank presidents under the Appointment Clause of the Constitution and suggested that Fed employees may not constitutionally have the executive authority to deny master accounts in the first place.
By Andrew Fielden [email protected]
Edited By Deanna Dulske [email protected]
Edited By Taylor O’Brien [email protected]