Federal Reserve proposes limited master accounts long pursued by crypto firms

TL;DR

The U.S. Federal Reserve has proposed limited payment accounts for firms, allowing them to clear and settle payments without full master-account status. This move aims to enhance access to the Fed's payment systems, especially for crypto firms.

Key points

Federal Reserve proposes limited payment accounts for firms
Accounts aim to enhance access to Fed's payment systems
Crypto firms can clear and settle payments more efficiently
No access to intraday credit or interest on balances
60-day comment period opened for feedback

The U.S. Federal Reserve took another step toward special limited payment accounts that would give a lighter version of the master-account services the central bank offers to its fully-fledged banks, opening a comment period on the latest description of the new accounts.

Firms with diverse business models can use such accounts to clear and settle payments to increase speed and reduce their costs, but without master-account status, the Fed explained in a Wednesday statement. The central bank, which supervises and regulates its member banks, had issued a request for information in December to start crafting the concept with an initial 45-day comment period, and this approach is "substantially similar to the prototype outlined" in that effort.

Obtaining this enhanced access to the Fed's payment rails has been a significant goal within the crypto sector, and the Fed's earlier proposal was commonly referred to as "skinny" accounts.

"Payment account holders would not have access to intraday credit or the discount window, would not earn interest on balances held at a Reserve Bank, and would only have access to payment services with automated controls to prevent overdrafts," the Fed said in the statement on its new proposal, which will be opened for a 60-day comment period.

But in response to comments to the Fed since December, it did overhaul parts of the idea, noting that "closing balance limits would be based on an institution's expected payment activity and the maximum closing balance was increased."

In March, Kraken became the first crypto bank to get a limited master account, though that access was granted by the Federal Reserve Bank of Kansas City and not under a federal rule from the Fed board in Washington. The Fed said it's now asked the regional banks to pause their consideration of certain applications while it finishes the rule.

Just a day earlier, President Donald Trump issued a related executive order that asked the Fed to review how it grants uninsured depository institutions and non-bank financial firms access to payment accounts and services. This order also requested examination on the 12 regional Fed banks acting independently of the board to set up payment accounts.

Q&A

What are the new limited payment accounts proposed by the Federal Reserve?

The proposed limited payment accounts allow firms to clear and settle payments without full master-account status, providing a lighter version of services offered to traditional banks.

How do the limited payment accounts benefit crypto firms?

These accounts enable crypto firms to increase payment speed and reduce costs while accessing the Fed's payment rails without the full privileges of master accounts.

What restrictions come with the Federal Reserve's limited payment accounts?

Account holders will not have access to intraday credit, the discount window, or earn interest on balances, and will have automated controls to prevent overdrafts.