The Federal Reserve proposed a new, more limited type of payment account on Wednesday, allowing companies such as fintech firms to transfer funds through the Fed's payment channels, but without all the protections available to traditional banks.
In a statement, the Fed indicated that the proposed accounts would not include access to intraday credit or the Fed's discount window, and companies would not earn interest on reserves held at the Fed.
For years, fintech and cryptocurrency companies have sought access to the Fed's master accounts. Often compared to bank accounts for banks, these master accounts allow holders to transfer funds directly through the Fed's payment system, speeding up transactions and reducing costs.
However, the proposal has faced strong opposition from the banking industry. Banks have long argued that allowing lightly regulated crypto and fintech companies direct access to the Fed's payment system could pose operational and liquidity risks.
While the Fed subjects applications from non-insured depository institutions to stricter review, these entities face relatively lighter ongoing supervision compared to insured banks. Fed Governor Michael Barr opposed the proposal, stating it lacks sufficient safeguards to ensure these accounts would not be used for illicit financing activities.
Nonetheless, the situation began to shift last year. In December, the Fed first introduced a plan for a new type of limited payment account for fintech and crypto companies. Then in March, Kraken became the first crypto company to obtain a Fed master account, albeit with restrictions, five years after initially applying.
Public information shows that crypto platforms Ripple and Anchorage Digital, as well as fintech remittance company Wise, also seek to obtain Fed master accounts.
The Fed's new proposal came one day after former President Trump signed an executive order directing the Fed to review its payment account policies and explore ways to expand access.
Discussing the executive order, Roman Goldstein, a senior director at Klaros Group, noted, "This clearly signals the White House's desire to broaden access to the Fed's payment system."
Under Fed rules, only depository institutions can hold master accounts. Goldstein pointed out that several other crypto and fintech companies are applying for depository trust institution charters, which would make them eligible to apply for Fed accounts and potentially benefit from the new rule.
The Fed stated that the proposal does not expand the legal eligibility for opening accounts or using payment services, with the final decision still resting with Federal Reserve Banks across the country. However, the Fed indicated that during the proposal's pendency, it has requested Reserve Banks to pause decisions on pending account applications from non-traditional firms to ensure "consistent implementation."
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