Banking and Finance Law Daily Wrap Up, BANKING OPERATIONS—U.S.: Custodia reply brief asks Supreme Court to review Fed master account authority, (Oct 29, 2026)

By Charles A. Menke, J.D.

Custodia said the Monetary Control Act’s mandatory service-availability language limits Reserve Banks’ asserted discretion.

Custodia Bank, Inc. is asking the U.S. Supreme Court to review whether officials heading regional Federal Reserve Banks may deny master accounts to eligible state-chartered institutions. In a reply brief supporting its petition for a writ of certiorari, the bank urged the Court to grant certiorari despite acknowledging no circuit conflict, citing disagreement among jurists, the issue’s stakes, and the rarity of a bank suing the Federal Reserve (Custodia Bank, Inc. v. Federal Reserve Board of Governors, No. 26-62 (U.S. October 2026)).

Background. Custodia is a Wyoming-chartered nonmember bank that serves digital asset companies and applied to the Federal Reserve Bank of Kansas City for a master account. According to the Fed’s brief, the Reserve Bank president denied the application after finding Custodia’s business model posed unacceptable risks inconsistent with safe and sound banking practices. Custodia sued while the application was pending, initially seeking a decision, and later amended its complaint to seek an order compelling approval. A Wyoming federal district court granted summary judgment to the Fed and Kansas City Fed, dismissing the Administrative Procedure Act claim against the Fed for lack of final agency action, and rejected Custodia’s absolute-entitlement theory (see Banking and Finance Law Daily, April 1, 2024 ). A divided Tenth Circuit panel affirmed, holding that Section 342 grants discretion that 12 U.S.C. §248a does not override (see Banking and Finance Law Daily, Nov. 3, 2025 ). Subsequently, the Tenth Circuit denied an en banc rehearing. Custodia then filed its petition for certiorari in July 2026 (see Banking and Finance Law Daily, July 16, 2026). The Federal Reserve Board and the Federal Reserve Bank of Kansas City requested the U.S. Supreme Court to deny Custodia’s petition for certiorari, arguing that 12 U.S.C. §342 gives Reserve Banks discretion, rather than an obligation, to grant master accounts (see Banking and Finance Law Daily, Oct. 22, 2026).

Statutory dispute. Custodia’s central argument turns on the interaction between 12 U.S.C. 248a and 12 U.S.C. 342. Custodia argues that the Monetary Control Act’s Section 248a(c)(2) requires Federal Reserve services to be available to nonmember depository institutions, relying on the words “shall be available.” Custodia says that obligation extends across the Federal Reserve System, including individual Reserve Banks, because the provision covers “[a]ll Federal Reserve bank services.”

According to Custodia, the respondents principally argue that Section 342 gives regional Reserve Banks discretion because it says they “may receive * * * deposits.” Custodia responds that Section 342 provides general authority to accept deposits, while Section 248a limits discretion over service availability. It also rejects the respondents’ asserted view that Section 248a is only a pricing provision, arguing that the text first addresses availability and then pricing.

Custodia also says Section 248a incorporates a definition covering “any bank which is eligible” to apply for FDIC insurance. On that basis, it argues Reserve Banks must provide covered services to legally eligible nonmember banks. The bank further says Section 248c’s requirement to report rejected master-account applications is an information-gathering measure, not substantive authority to deny access.

Beyond the statutory text, Custodia argues that the lower-court decision creates an Appointments Clause problem by giving regional Reserve Bank presidents unsupervised regulatory authority over master-account decisions even though, according to the bank, they are not appointed as principal or inferior officers under Article II. Custodia treats constitutional avoidance as support for its statutory interpretation rather than as a standalone constitutional claim.

Custodia says the decision could affect every bank and the states’ role in the dual banking system by making the practical effect of a state bank charter depend on regional Reserve Bank approval. It quotes the Federal Reserve Bank of Kansas City as saying that “the Board does not exercise direct authority over [account-access] decisions,” and argues that Board guidelines therefore do not meaningfully constrain Reserve Bank presidents.

On financial-system risk, Custodia’s reply says the Federal Reserve warns that limiting discretion would impair its “ability to carry out [its] duty to safeguard our financial system from risky institutions.” Custodia responds that policy concerns cannot override statutory text and says other risk-management tools remain available short of denying master-account access.

The reply also addresses a dispute over preservation. Custodia says the respondents agree the statutory question was pressed and decided below but contend the bank did not adequately preserve a constitutional argument. Custodia answers that constitutional avoidance supports the statutory issue already before the Court. It asks the Supreme Court to grant the petition.

Attorneys: Kannon K. Shanmugam (Davis Polk & Wardwell LLP) for Custodia Bank, Inc. Jeffrey S. Bucholtz (King & Spalding LLP) for Federal Reserve Bank of Kansas City. D. John Sauer, U.S. Department of Justice, for Federal Reserve Board of Governors.

Companies: Custodia Bank, Inc.

MainStory: TopStory BankingOperations ColoradoNews FederalReserveSystem KansasNews NewMexicoNews OklahomaNews StateBankingLaws SupremeCtNews UtahNews WyomingNews