Crypto Bank Custodia Files Petition for a Rehearing by All Appellate Judges 2025

Custodia Bank Takes Legal Action Against the Federal Reserve

Wyoming-based Custodia Bank, a crypto-focused financial institution, has taken its fight to a higher level. The bank filed a petition for an en banc rehearing with the U.S. Court of Appeals for the Tenth Circuit. This challenges the October 2025 decision by a three-judge panel that backed the Federal Reserve Bank of Kansas City’s refusal to grant Custodia a master account. This case is about more than just a denied bank account. It touches on deep regulatory issues facing crypto banks that want to join the U.S. financial system.

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The Federal Reserve Denies Custodia’s Master Account Application

In January 2023, Custodia Bank applied for a master account with the Federal Reserve. This account would allow access to essential federal banking services like reserves, payments, and settlements. Such accounts are key for banks to operate smoothly within the U.S. payment systems. Yet, the Fed rejected Custodia’s application. The refusal stemmed primarily from the bank’s strong focus on crypto assets. The Federal Reserve cited several concerns, including:

• Risk of illicit activities linked to crypto markets
• Lack of traditional risk management experience
• The unpredictable nature and unclear regulations of digital assets

Interestingly, this denial stands out when compared to the quick approval given to BNY Mellon for its crypto custody services. This contrast has stirred debate over how crypto banks are treated by regulators.

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Custodia’s Legal Case for Rehearing

Custodia argues that the original judges misunderstood the Monetary Control Act. The bank says that as a state-chartered Special Purpose Depository Institution (SPDI), it has a legal right to a Federal Reserve master account without having to get permission or face discretion from the Fed. The main points of Custodia’s petition include:

• The Monetary Control Act guarantees SPDIs like Custodia must be given access to Fed master accounts.
• The panel wrongly expanded the Fed’s power to deny access at its own discretion.
• Allowing this much Fed control harms state banking rights and constitutional checks.
• The decision could block crypto banks from joining the mainstream banking system, hurting innovation.

If the ruling stands, currency-focused banks may find it harder to comply with anti-money laundering (AML) rules or handle U.S. payments effectively.

The Court’s Reasons and a Judge’s Dissent

The October 2025 ruling supported the Fed’s role in keeping the financial system safe. Judges emphasized worries about:

• Custodia’s connection to risky digital assets
• Possible exposure to illegal finance within currency markets
• Custodia’s limited background in managing traditional banking risks

Still, Judge Tymkovich disagreed. He warned against giving the Fed power that can’t be reviewed by courts. The judge stressed the need for fairness and oversight to avoid the government having unchecked authority.

Why This Case Matters to Crypto Banks

The case is under close watch by many in the currency community and financial sectors. Media outlets like CoinDesk, KuCoin, XT.com, CryptoRank, and Banking Dive are following it carefully. The fight is seen as a key moment for crypto banks within U.S. laws. Here is why this is important for currency banks:

• A win for Custodia could clear up vague rules around U.S. currency banks.
• It would confirm that SPDIs can get Fed accounts without arbitrary blocks.
• This could help currency companies connect better to payment systems.
• More crypto firms might seek full banking licenses, boosting innovation.
• If the Fed keeps broad denial powers, currency banks could face barriers that limit growth and AML efforts.

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Latest News Coverage on Custodia’s Petition for Rehearing

To understand the current state and implications of this case, several respected news sources offer in-depth coverage and analysis:

• XT.com offers a detailed report on Custodia’s petition arguing the original three-judge panel undermined state banking authority and questioned constitutional issues. Read more
• CoinDesk outlines the background and legal claims, emphasizing impacts on the crypto banking industry. Full article
• KuCoin News provides a concise flash summary focusing on the legal contention over access to Fed master accounts. Learn more
• CryptoRank breaks down the legal arguments and potential precedents this case could set for SPDIs. Explore analysis
• Phemex News covers Custodia’s request for the full Tenth Circuit review, contextualizing the statutory disputes. See article

The aggregated news underscores the case’s importance as a legal battleground defining federal power boundaries over state-chartered crypto banks.

Public and Social Media Reactions

While no detailed explainer videos are currently available on this specific petition, the legal challenge is actively discussed across social platforms like X (formerly Twitter). Key players in the currency space share updates and insight, highlighting ongoing tensions between traditional regulators and the currency industry.

Looking Ahead: What This Means for Crypto Banking

Custodia Bank’s request for an en banc rehearing shines a light on the ongoing struggle between regulators and currency banks. This case raises key questions about how much power the Fed should have and the rights of state-chartered crypto banks. For anyone involved in crypto banking or digital assets, the outcome of this rehearing matters a lot. It could shape how crypto firms fit into the mainstream finance world in the coming years. The U.S. must find the right balance between encouraging currencyinnovation and protecting system security. Custodia’s case stands at that crossroads. Stay updated as this important currency banking story unfolds.

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