Federal Reserve Act Confers Discretion (Not Entitlement) Over Master Accounts for Nonmember Depository Institutions

I. Introduction

In Banco San Juan Internacional, Inc. v. Fed. Rsrv. Bank of N.Y., Bd. of Governors of the Fed. Rsrv. (2d Cir. May 13, 2026), the Second Circuit addressed a recurring, high-stakes question in modern payments law: whether an eligible, nonmember “depository institution” has a statutory right to a Federal Reserve “master account,” the essential gateway for direct access to Fed payment rails (e.g., Fedwire and ACH).

Plaintiff-Appellant Banco San Juan Internacional, Inc. (“BSJI”), a Puerto Rico-chartered “International Banking Entity” (“IBE”), sued after the Federal Reserve Bank of New York (“FRBNY”) terminated BSJI’s master account following an extended compliance review and anti–money laundering risk assessments. BSJI alleged the Federal Reserve Act (“FRA”), as amended by the Monetary Control Act (“MCA”), made access to Fed services nondiscretionary once statutory eligibility was satisfied. BSJI pursued relief through the Administrative Procedure Act (“APA”), the Mandamus Act, the Declaratory Judgment Act (“DJA”), the Fifth Amendment Due Process Clause, and New York contract law.

The key issues were: (1) whether the FRA/MCA creates a nondiscretionary entitlement to a master account; (2) whether BSJI had Article III standing to sue the Board of Governors (the “Board”) for FRBNY’s termination decision; (3) whether the FRBNY’s decision was reviewable under the APA or enforceable via mandamus/due process; and (4) whether FRBNY breached contractual duties despite express at-will termination language.

II. Summary of the Opinion

The Second Circuit affirmed dismissal of all claims. It held:

  • No statutory entitlement: The FRA does not impose a nondiscretionary duty on Reserve Banks to grant or maintain master accounts for nonmember institutions.
  • Reserve Bank discretion: 12 U.S.C. § 342 (“may receive … deposits”) confers discretionary authority over accepting deposits—implemented in practice through master accounts.
  • MCA pricing provision is not an access mandate: 12 U.S.C. § 248a(c)(2) (“services … shall be available”) is a non-discrimination/pricing principle, not an entitlement to an account.
  • Board not a proper target here: BSJI lacked Article III standing against the Board because FRBNY’s termination was an independent decision not fairly traceable to Board action.
  • APA review barred (even assuming “agency”): The termination decision was “committed to agency discretion by law” because there was “no law to apply.”
  • Mandamus/Due Process/DJA claims fail: They depended on a clear nondiscretionary duty or a viable cause of action; neither existed.
  • Contract claims fail: New York law enforced the unqualified right to terminate “at any time by notice.”
  • Leave to amend properly denied: The proposed Fifth Amendment Equal Protection claim was futile (no viable cause of action; no plausible discriminatory purpose).

III. Analysis

A. Precedents Cited

1. Master-account access litigation backdrop

  • Fourth Corner Credit Union v. Fed. Rsrv. Bank of Kan. City, 861 F.3d 1052 (10th Cir. 2017) (and Fourth Corner Credit Union v. Fed. Rsrv. Bank of Kan. City, 154 F. Supp. 3d 1185 (D. Colo. 2016), vacated): The Second Circuit used Fourth Corner principally as contextual authority—illustrating that disputes over master-account access arise when Reserve Banks deny access to “nontraditional” institutions. The opinion also noted that only Judge Bacharach would have found a statutory right under § 248a(c)(2), underscoring that the entitlement theory is contested but not adopted by controlling courts.
  • PayServices Bank v. Fed. Rsrv. Bank of S.F., No. 1:23-CV-00305 -REP, 2024 WL 1347094 (D. Idaho Mar. 30, 2024): Cited as another case rejecting attempts to convert statutory eligibility into an enforceable entitlement to a master account. The Second Circuit treated this line of district-court authority as consistent with its reading of §§ 342 and 248a.
  • Custodia Bank, Inc. v. Fed. Rsrv. Bd. of Governors, 157 F.4th 1235 (10th Cir. 2025): This was the most important appellate comparator. The Second Circuit explicitly “join[ed] the Tenth Circuit” in holding that § 342 confers discretion and that § 248a(c) does not create an entitlement. The court also echoed Custodia’s functional point that master-account authority is implied from the power “to receive deposits.”

2. Statutory interpretation: “may” vs. “shall” and legislative reenactment

  • Farmers' & Merchs.' Bank of Monroe, N.C. v. Fed. Rsrv. Bank of Richmond, Va., 262 U.S. 649 (1923): The linchpin. The Supreme Court interpreted the FRA’s “may” language (predecessor to § 342) as “words of authorization merely,” creating no obligation to exercise the power. The Second Circuit treated this as near-dispositive: Congress later amended § 342 via the MCA without changing “may,” implying acceptance of the Court’s construction.
  • Biden v. Texas, 597 U.S. 785 (2022), and Yoo v. United States, 43 F.4th 64 (2d Cir. 2022): Used for the conventional interpretive proposition that “may” denotes discretion, in contrast to mandatory “shall/must.”
  • Lorillard v. Pons, 434 U.S. 575 (1978), and Tex. Dept's of Hous. & Cmty. Affs. v. Inclusive Cmtys. Project, 576 U.S. 519 (2015): Reinforced the reenactment canon: when Congress reenacts or amends statutory text while leaving judicially construed language intact, it is presumed to adopt that interpretation.
  • Whitman v. Am. Trucking Ass'ns, 531 U.S. 457 (2001), and Branch v. Smith, 538 U.S. 254 (2003): Supported the court’s refusal to treat § 248a(c)(2)—a “Pricing of services” provision—as a hidden overhaul of Reserve Bank access authority (“hide elephants in mouseholes”; no implied repeal absent clear intent).
  • DHS v. MacLean, 574 U.S. 383 (2015), and Barnhart v. Sigmon Coal Co., 534 U.S. 438 (2002): Used to emphasize Congress’s deliberate drafting choices, especially the court’s point that § 248a(c)(2) modifies “All Federal Reserve bank services” but not “nonmember depository institutions”—a textual clue undermining BSJI’s “every eligible applicant” entitlement theory.
  • Robinson v. Shell Oil Co., 519 U.S. 337 (1997), Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 583 U.S. 366 (2018), INS v. Nat'l Ctr. for Immigrants' Rts., Inc., 502 U.S. 183 (1991), and Yates v. United States, 574 U.S. 528 (2015): These authorities anchored the court’s structural/contextual approach: headings and surrounding provisions help confirm whether a clause is a pricing principle, eligibility rule, or access mandate.
  • Greater Buffalo Press, Inc. v. Fed. Rsrv. Bank of New York, 866 F.2d 38 (2d Cir. 1989): BSJI invoked this as suggesting services were “to be made available” to all banks. The Second Circuit rejected that reading, noting the case did not interpret §§ 342 or 248a and did not establish a nondiscretionary right to a master account.

3. Standing doctrine against the Board

  • Allen v. Wright, 468 U.S. 737 (1984), Lujan v. Defs. of Wildlife, 504 U.S. 555 (1992), TransUnion LLC v. Ramirez, 594 U.S. 413 (2021), Spokeo, Inc. v. Robins, 578 U.S. 330 (2016), Rothstein v. UBS AG, 708 F.3d 82 (2d Cir. 2013), and Simon v. E. Ky. Welfare Rts. Org., 426 U.S. 26 (1976): These cases supplied the traceability framework. The Second Circuit held that FRBNY’s termination was the “independent action of some third party,” breaking causation as to the Board, especially because the Board lacks statutory authority to open/close master accounts and expressly disclaimed control.

4. APA reviewability and “no law to apply”

  • Heckler v. Chaney, 470 U.S. 821 (1985), and Citizens to Pres. Overton Park v. Volpe, 401 U.S. 402 (1971): Provided the doctrinal basis for finding that an action is unreviewable when statutes are so broad that there is “no meaningful standard” and thus “no law to apply.”
  • Salazar v. King, 822 F.3d 61 (2d Cir. 2016), Lunney v. United States, 319 F.3d 550 (2d Cir. 2003), and Westchester v. U.S. Dep't of Hous. & Urb. Dev., 778 F.3d 412 (2d Cir. 2015): Used to explain that plaintiffs bear the burden to identify “law to apply” from text/regulations/guidance and that broad, discretionary standards do not create enforceable constraints.

5. Mandamus, Due Process entitlement, and causes of action

  • Pittston Coal Grp. v. Sebben, 488 U.S. 105 (1988): Supported the proposition that mandamus requires a “clear nondiscretionary duty,” which the court found absent under § 342.
  • Town of Castle Rock v. Gonzales, 545 U.S. 748 (2005): Provided the due process entitlement principle: if officials may grant/deny a benefit in their discretion, it is not a protected property entitlement.
  • Chevron Corp. v. Naranjo, 667 F.3d 232 (2d Cir. 2012): Reinforced that the DJA is procedural and does not create a cause of action.
  • Corr. Servs. Corp. v. Malesko, 534 U.S. 61 (2001), and Adato v. Kagan, 599 F.2d 1111 (2d Cir. 1979): Supported the court’s conclusion that BSJI lacked a viable implied right of action for its constitutional theories against institutional defendants.

6. New York contract law enforcing express termination rights

  • Big Apple Car, Inc. v. City of New York, 204 A.D.2d 109 (1st Dep't 1994), and Watermelons Plus, Inc. v. N.Y.C. Dep't of Educ., 76 A.D.3d 973 (2d Dep't 2010): Supported the rule that an “absolute, unqualified right to terminate” must be enforced and courts will not inquire into purported ulterior motives.
  • In Touch Concepts, Inc. v. Cellco P'ship, 949 F. Supp. 2d 447 (S.D.N.Y. 2013), and Moran v. Erk, 11 N.Y.3d 452 (2008): Reinforced reluctance to use the implied covenant to limit unambiguous express contractual discretion.
  • Harris v. Provident Life and Acc. Ins. Co., 310 F.3d 73 (2d Cir. 2002): Supported dismissal of the implied covenant claim as duplicative of the breach-of-contract claim when based on the same facts.

7. Futility of amendment: Equal Protection pleading standards

  • Weinberger v. Wiesenfeld, 420 U.S. 636 (1975), and Ashcroft v. Iqbal, 556 U.S. 662 (2009): Framed Fifth Amendment equal-protection analysis and required plausible allegations of discriminatory purpose.
  • Washington v. Davis, 426 U.S. 229 (1976), and Brown v. City of Oneonta, N.Y., 221 F.3d 329 (2d Cir. 2000): Confirmed that disproportionate impact alone does not establish unconstitutional discrimination without additional evidence of animus/purpose.
  • Thea v. Kleinhandler, 807 F.3d 492 (2d Cir. 2015), and Pyskaty v. Wide World of Cars, LLC, 856 F.3d 216 (2d Cir. 2017): Provided the futility standard for denial of leave to amend.

B. Legal Reasoning

1. The dispositive statutory move: § 342 controls access and is discretionary

The court treated 12 U.S.C. § 342 as the operative access provision because it grants Reserve Banks the power to “receive … deposits” from “member banks, or other depository institutions.” Since modern master accounts are the mechanism for receiving deposits, the ability to open/maintain/terminate master accounts follows from § 342’s deposit-acceptance authority.

The decisive word is “may.” Relying on ordinary meaning (Biden v. Texas; Yoo v. United States) and the Supreme Court’s direct interpretation of the same statutory language (Farmers' & Merchs.' Bank of Monroe, N.C. v. Fed. Rsrv. Bank of Richmond, Va.), the Second Circuit held the power is permissive, not mandatory.

2. Why § 248a(c)(2) (“shall be available”) does not create an entitlement

BSJI’s theory was that because services “shall be available” to nonmembers, the FRBNY must provide the necessary master account. The Second Circuit rejected this by reading § 248a in its statutory role: it is a “Pricing of services” scheme directed at the Board, with subsection (c) listing “Criteria applicable” to the fee schedule.

On this view, § 248a(c)(2) is primarily anti-discrimination in pricing and schedule coverage—nonmembers must be able to access priced Fed services on the same fee schedule as member banks—rather than a command that every eligible institution must receive an account regardless of risk.

The court also relied on a subtle but consequential drafting point: Congress wrote “All Federal Reserve bank services … shall be available,” but did not write “all nonmember depository institutions.” That choice, reinforced by adjacent provisions that do use “all” before a class, undercut BSJI’s attempt to turn class-level availability into an individual entitlement.

3. Structural and “mousehole” reasoning: no implied repeal of decades-old discretion

The court refused to treat § 248a(c)(2) as silently stripping Reserve Banks of discretion that (a) is located in the “Powers and Duties of Federal Reserve Banks” subchapter, (b) was recognized by the Supreme Court in 1923, and (c) was not altered even when Congress amended § 342 in 1980. Invoking Whitman v. Am. Trucking Ass'ns and Branch v. Smith, it held Congress would not overhaul access authority through an ancillary pricing provision lacking any clear statement.

4. The Toomey Amendment as contemporary confirmation

The court reinforced its reading with the Toomey Amendment’s requirement that the Board publish a database showing whether master-account requests were “approved, rejected, pending, or withdrawn.” The inclusion of “rejected” for categories of statutorily eligible depository institutions was treated as textual confirmation that eligibility does not equal entitlement.

5. Standing against the Board: FRBNY’s “independent decisions” break traceability

Although the Board exercises “general supervision,” the Second Circuit emphasized that § 342 confers master-account authority directly on Reserve Banks, not by delegation from the Board. The Board’s issuance of Guidelines/S-Letter consultation procedures, and its “no concerns” response to FRBNY’s notice, did not transform FRBNY’s termination into Board action. Under Allen v. Wright and Lujan v. Defs. of Wildlife, the causal chain was broken by FRBNY’s independent choice.

6. APA: “committed to agency discretion by law”

Even assuming the FRBNY could be treated as an “agency,” the court held there was “no meaningful standard” to apply. The operative statute uses “may,” and the Guidelines’ risk principles (e.g., “undue risk”) were not judicially enforceable constraints, especially where the guidance reiterated Reserve Bank discretion. Under Heckler v. Chaney, this placed the termination decision within the APA’s unreviewability carveout for matters committed to discretion.

7. Mandamus/Due Process/DJA: all collapse without a nondiscretionary duty and a cause of action

Mandamus failed under Pittston Coal Grp. v. Sebben because the asserted duty was not “clear” and “nondiscretionary.” Due Process failed under Town of Castle Rock v. Gonzales because discretionary benefits are not protected entitlements. The DJA could not supply a missing cause of action (Chevron Corp. v. Naranjo), and constitutional claims against institutional entities were blocked by limits on implied remedies and agency liability (Corr. Servs. Corp. v. Malesko).

8. Contract: express at-will termination defeats implied duties

OC 1 allowed FRBNY to terminate “at any time by notice.” Supplemental Terms reiterated that power. The court applied New York authority enforcing unqualified termination provisions (Big Apple Car, Inc. v. City of New York; Watermelons Plus, Inc. v. N.Y.C. Dep't of Educ.) and rejected attempts to recast liability limitations (OC 1 § 7.1’s “ordinary care/good faith”) as overriding the express termination right.

9. Equal Protection amendment: no viable remedy and no plausible discriminatory purpose

The proposed allegation that most Venezuelan-owned IBEs lost accounts sounded in disparate impact. Under Washington v. Davis and Iqbal, BSJI needed plausible facts showing discriminatory purpose, not merely statistical disparity. The Reuters-reported “directive” was read as reflecting sanctions/AML risk concerns rather than animus. The amendment was therefore futile.

C. Impact

  • Second Circuit alignment with the Tenth Circuit: By expressly joining Custodia Bank, Inc. v. Fed. Rsrv. Bd. of Governors, the Second Circuit strengthens an emerging appellate consensus: master-account access for nonmember institutions is discretionary under § 342, and § 248a(c)(2) does not create a judicially enforceable entitlement.
  • Litigation channeling: The opinion narrows federal-court pathways. APA review is likely to fail on “committed to discretion” grounds; mandamus and due-process theories fail absent a nondiscretionary duty; DJA cannot create a cause of action.
  • Board insulation via standing doctrine: Plaintiffs challenging access denials/terminations will struggle to sue the Board unless they can plead Board control over the specific access decision (not merely supervision or consultation).
  • Contract drafting matters: Institutions with master accounts face steep odds in state-law claims where OC 1 and supplemental agreements contain at-will termination clauses. The implied covenant will not be used to rewrite access discretion.
  • Regulatory-policy consequences: The decision reinforces Reserve Banks’ role as risk gatekeepers for institutions without federal insurance/regulation, particularly “Tier 3” entities under the Board’s Guidelines, and validates account termination as a principal risk-control “blunt instrument” for nonmember institutions.

IV. Complex Concepts Simplified

  • Master account: The Fed’s bank account for a bank—required for direct use of Fed payment services (wire/ACH/check settlement).
  • “May” vs. “shall”: In statutes, “may” usually grants permission (discretion), while “shall” imposes a mandatory duty. Here, “may receive deposits” meant Reserve Banks are authorized but not required to accept deposits/account relationships.
  • MCA “pricing of services”: The MCA required the Fed to charge fees and to offer priced services to nonmember institutions on equal pricing terms. The court read this as preventing fee discrimination—not guaranteeing account access for every eligible institution.
  • APA “committed to agency discretion by law”: Courts cannot review an agency decision if Congress provided no meaningful legal standard for a judge to apply. A broad discretionary grant (“may”) often triggers this.
  • Article III standing (traceability): You can sue only if your injury is fairly traceable to the defendant’s conduct. If a separate entity made the decisive choice independently, causation fails.
  • Implied covenant of good faith and fair dealing: A background contractual rule preventing bad-faith sabotage of the contract, but it cannot override an express, unambiguous right—like an at-will termination clause.

V. Conclusion

The Second Circuit’s central doctrinal contribution is clear: the FRA’s deposit-acceptance provision, 12 U.S.C. § 342, gives Reserve Banks discretionary control over master accounts, and the MCA’s “shall be available” language in 12 U.S.C. § 248a(c)(2) does not convert statutory eligibility into an enforceable entitlement. The opinion also meaningfully constrains litigation strategy by (1) limiting suits against the Board through standing doctrine, (2) treating access terminations as unreviewable under the APA for lack of “law to apply,” and (3) enforcing at-will termination clauses under New York law. As master-account access disputes continue—especially involving fintech, crypto, offshore, and other nontraditional institutions—this decision fortifies Reserve Bank discretion as the governing rule in the Second Circuit.