Blockchain Association Escalates Fight Over Federal Reserve Banking Access

Fed’s Payment Power Under Fire

The Blockchain Association has stepped into a major regulatory battle, filing a legal brief urging the Supreme Court to examine the Federal Reserve’s authority over financial system access. The organization backed Custodia Bank’s challenge to a lower court decision that sided with the Fed’s refusal to grant the company a master account—critical banking infrastructure that would enable the firm to process payments directly with the central bank.

The filing underscores mounting tensions between regulators and the crypto industry over whether federal authorities can use banking system gatekeeping to restrict which industries banks can serve. Custodia, a Wyoming-chartered crypto bank providing custody services, payment infrastructure, and stablecoin offerings to institutional clients, has pursued master account access for years without success.

Challenging Federal Authority Over State Banks

At the dispute’s core lies a fundamental question: Can federal regulators override decisions by state authorities to charter and oversee banks? In October, a federal appeals court determined that eligibility alone does not guarantee a master account. When Custodia requested a full rehearing before the Tenth Circuit in December, the Blockchain Association decided to intervene with a legal brief supporting the bank’s position.

The trade group contends the Fed’s approach threatens the nation’s dual banking system, where both state and federal bodies authorize financial institutions. If the lower court ruling stands, federal regulators could selectively deny payment system access based on discretionary judgments about which industries to support—effectively sidelining lawful businesses through regulatory gatekeeping rather than explicit legislation.

Regulatory Pressure Mounts on Crypto Finance

The Blockchain Association’s brief invoked comparisons to “Operation Choke Point 2.0,” describing recent federal regulatory pressure critics argue has discouraged traditional banks from serving crypto clients. According to the filing, federal authorities deployed vague rules, broad discretionary powers, informal guidance, and aggressive enforcement to pressure financial institutions away from digital asset businesses.

The organization framed Custodia’s case as part of a broader pattern with stakes extending well beyond a single bank’s master account application. How courts resolve the federal versus state banking authority question could shape the regulatory landscape for any state-chartered institution seeking to operate in the crypto sector.

The case represents a critical juncture for crypto banking: if courts uphold the Fed’s broad discretionary powers, regulators could effectively exclude crypto-friendly services from traditional finance without passing new laws; if the Supreme Court constrains that authority, it could significantly limit federal regulators’ ability to use banking access as a policy enforcement tool against the digital asset sector.

Source: The Blockchain Association, via Decrypt. Not financial advice.