Wyoming is known for sprawling plains in the east, soaring mountains in the west and a small but independent populace that believes strongly in self-determination.
“In this part of the country, we pretty much want the government to stay out of our business,” says Scott Meier, CEO of the Wyoming Bankers Association (WBA), which represents the state’s commercial and savings banks.
While Meier believes small government is typically better than the alternative, he also believes federal regulations that ensure the safety and soundness of the nation’s financial system are too important to disregard for the sake of progress.
It is why Meier is on the opposite side of the state of Wyoming in an ongoing legal battle pitting Custodia Bank — a self-described “digital asset service” chartered in Wyoming as a special purpose depository institution — against the Federal Reserve over which financial institutions are allowed to obtain a Fed master account. The WBA filed an amicus brief in support of the Fed, while the State of Wyoming submitted one on behalf of Custodia Bank.
They are among nearly 20 groups or individuals that have expressed their opinions to the courts, because the stakes are high in this case. Most importantly, access to a Fed master account means access to the Fed’s national payment systems, such as FedWire and FedNow. Traditional financial institutions such as banks and credit unions are highly protective of that access, and fintechs and crypto firms covet it greatly because it would allow them to stop relying on partner banks that often charge high fees to facilitate payments.
While acknowledging Custodia is indeed eligible for a master account, the Federal Reserve Bank of Kansas City in 2023 ultimately denied its application, citing the undue risk the institution’s crypto-focused business model would introduce into the Fed’s payment systems and services. Custodia Bank filed a lawsuit arguing that federal law does not give the Fed such discretion and instead provides for all eligible institutions to obtain automatic master account access.
But in a 2-1 vote, the 10th U.S. Circuit Court of Appeals on Oct. 31 upheld a lower-court ruling that rejected Custodia Bank’s argument. Custodia Bank didn’t respond to a request for comment.
The ruling is being hailed as a victory by banking trade groups around the country, but it hardly puts the matter to rest. With fintech firms and their advocates continuing to push for master account access and regulators actively discussing alternative options on how to provide it, the days of Fed master accounts remaining the exclusive domain of traditional financial institutions could be coming to an end.
Is Limiting Master Account Access About Risk or Competition?
There are those who believe the risk argument against eligible fintechs outweighs everything else.
“I mean, what’s at stake? It’s nothing less than the integrity and the stability of the U.S. financial system,” says Brian Laverdure, senior vice president of digital assets and innovation policy for the Independent Community Bankers of America (ICBA). “If you want that access, be a bank, be regulated like a bank, be like everyone else that operates in that system, subject to the same standards, rules and regulation.”
Meier argues that this point is especially pertinent in 2025, as nontraditional digital financial institutions are being chartered in various ways across multiple states. “Just assume for a minute that Wyoming does have great laws, and you think just because you’ve got a state charter, you’re entitled to this master account. But I don’t know if I can say the same thing about Nebraska or whether I can say the same thing about Colorado or Texas or Missouri or whatever. I have no idea,” Meier says.
Brian Graham, a partner for Klaros Group, which provides strategic, risk and regulatory advisory services for both fintechs and traditional financial institutions, says there’s no question there would be some risk in the Fed providing full master account access to nontraditional digital financial institutions. But he also believes banks and credit unions are concerned about the competitive marketplace as well. “I do think that the risks are there and manageable,” Graham says. “I also think that the banking lobby has a point when they’re concerned about one more step in an eroding set of advantages and powers that come with being a bank, because it’s not like the regulatory burden is going to go away if this advantage goes away.”
“There’s this balancing act between the benefits and costs of being an insured depository (institution),” he says. “And so, you can’t, I think, look at these things in isolation.”
Laverdure says the ICBA isn’t concerned about its member institutions maintaining an advantage, but rather competing on a level playing field.
“I think we all thrive in a very competitive environment, but that competitive environment is grounded in fair competition,” he says. “So, allowing new entrants with novel charters that are subject to less regulation than all the other entities that are currently in the system — that’s not fair.”
The Shifting Winds of Regulation
While the recent court ruling is a setback for Custodia Bank and other nontraditional institutions, a much friendlier regulatory climate could soon give far more momentum to their cause.
Federal Reserve Board Gov. Christopher Waller first expressed his support for what he called a “skinny” master account in an October 21 address to the Fed’s Payments Innovation Conference.
Waller said such an account would provide access to the Fed’s payment rails while controlling for various risks to the Fed. “To control the size of the accounts and associated impacts on the Fed’s balance sheet, the Reserve Banks would not pay interest on balances in a payment account, and balance caps may be imposed,” Waller said.
He also clarified that skinny account holders would not be allowed to access a Fed service that provides overdraft protection to some master account holders during business hours, based on the understanding they will cover the balance by day’s end. “These accounts would not have daylight overdraft privileges,” he said. “If the balance hits zero, payments will be rejected. They would not be eligible for discount window borrowing or have access to all Federal Reserve payment services for which the Reserve Banks cannot control the risk of daylight overdrafts.”
Speaking at the Federal Reserve Bank of Philadelphia’s Nov. 12 Fintech Conference, Waller clarified that he was not seeking to expand eligibility for a traditional Fed master account. But he would like the Fed to move quickly on setting up what he is now calling a “skinny payment account” that would provide tiered access to a master account based on an eligible depository institution’s risk portfolio. “This is where the direction of things are headed, and I want to just do this in a proactive way, in a way that we kind of keep control of things without seeing a court jam something down our throat (that) we have to do,” he said.
Perhaps surprisingly, Waller’s skinny account idea also has the backing of the Wyoming Bankers Association’s Meier.
“I would like to explore it,” he says. “I do think that may be a possibility because what you want to do is control that risk factor.”
David Zaring, a professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School, also sided with the Fed in their case against Custodia Bank, writing in an amicus brief that its right of discretion must be preserved due to the inherently dangerous nature of banking, which has led to past financial crises.
But Zaring too believes that problem can be solved through the establishment of a skinny payment account that provides the necessary regulatory safeguards. “I was glad to hear Waller talk about it, and it just seems to make sense to me to have a federal payments charter, which would really benefit firms that otherwise have to use money transmitter licenses on a state-by-state basis,” he says. “And a well regulated federal payment system offers that.”
Laverdure says the ICBA fears opening this door to fintechs, because they will eventually want to do all the same things that banks do. But he wants to see a concrete proposal from the Fed before making any more comments on it. He may not have to wait long. Waller expects to get things moving as soon as possible.
“The goal here, assuming nothing goes haywire, is to have these up and operationalized by the fourth quarter of 2026,” Waller says. “So, we’re moving at startup speed on this.”
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