Appeals Court Upholds Federal Reserve’s Discretion to Deny Master Accounts
The U.S. Court of Appeals for the Tenth Circuit upheld a lower court ruling affirming that Federal Reserve Banks have discretion to deny master account applications from legally eligible institutions.
The plaintiff/appellant, a state-chartered Special Purpose Depository Institution ("bank") serving digital asset clients, applied for a master account with the Federal Reserve Bank of Kansas City ("Fed") to obtain direct access to the Federal Reserve’s payment system. After a review, the Fed denied the application due to concerns over the bank’s "novel" crypto-asset activities and related risks. The bank then filed suit, arguing that federal law imposes a nondiscretionary duty to grant account access to all statutorily eligible institutions. The U.S. District Court for the District of Wyoming ruled in favor of the Federal Reserve, and the bank appealed.
The Tenth Circuit held that the Federal Reserve Act governs account access and that the statute’s use of the term "may" grants Reserve Banks discretion to decide whether to open accounts. The Court found that the Act’s "shall be available" language is a pricing directive intended to ensure equal treatment among eligible institutions, not a mandate to provide access. The Court further pointed to the 2022 Toomey Amendment, which requires the Federal Reserve to report both approved and rejected applications, as evidence that Congress anticipated denials. In a dissenting opinion, a judge argued that "shall be available" creates a mandatory duty to grant access and warned that the majority’s interpretation grants unelected officials broad, unreviewable authority over participation in the Federal Reserve system.
The Court rejected the bank’s Administrative Procedure Act claim, explaining that an internal Federal Reserve Board email stating it had "no concerns" with the Reserve Bank proceeding on the application did not constitute a final or reviewable agency action because the authority to approve or deny the application rested solely with the Reserve Bank.