Banking sector and cryptocurrency firms clash over Federal Reserve's proposed limited master accounts
The Federal Reserve's proposal for restricted central bank access has garnered support from cryptocurrency firms, while traditional banking groups have expressed reservations and called for careful consideration.
Banking associations and cryptocurrency firms have presented contrasting perspectives to the Federal Reserve regarding a plan that would establish what are being termed "skinny master accounts," providing fintech companies with restricted entry to the central bank's payment processing systems.
A total of 44 responses were submitted to the Fed following its request for public input on the proposal, with the comment period concluding on Friday. The initiative seeks opinions on establishing a "payment account," and responses revealed that cryptocurrency businesses support the concept while traditional banks have recommended a cautious approach.
When the Fed initiated the comment period for this proposal in December, Fed Governor Christopher Waller explained that the introduction of new payment accounts was necessary because of "rapid developments" in the payments sector and that such accounts would "support innovation while keeping the payments system safe."
These payment accounts will not provide identical benefits as traditional master accounts, which are typically held by major banking institutions. They will not generate interest earnings, provide access to Federal Reserve credit facilities, and will be subject to restrictions on maximum balances.
Crypto backs getting accounts
Among the responses to the Fed's proposal, stablecoin provider Circle submitted correspondence stating that these accounts would "play an important first step in carrying forward Congress' vision under the GENIUS Act" and maintained they would "materially strengthen US payments."
The newly established Blockchain Payments Consortium characterized these accounts as an "overdue and much-welcomed addition" that would "eliminate uncompetitive practices that undercut consumers and concentrate risk around a handful of banks," according to their statement.
Anchorage Digital Bank, which holds the distinction of being the nation's first federally chartered cryptocurrency bank, indicated that "specific deficiencies" within the proposal need to be resolved concerning overnight balance restrictions, interest on reserves and access to the Fed's automated clearing house.
The Federal Reserve has proposed establishing an overnight balance restriction at the lower amount of either $500 million or 10% of the account holder's total assets and indicated it would not provide interest on account balances or permit access to its clearing house, which facilitates same-day and international payment processing.
Banks raise concerns about access to Fed system
In contrast, several banking associations submitted responses to the Federal Reserve expressing apprehension about granting various entities entry into the central banking infrastructure.
The American Bankers Association indicated that numerous entities that would qualify for a payment account "lack a long-run supervisory track record, are not subject to consistent federal safety-and-soundness standards and may rely on evolving statutory or regulatory regimes."
The Wisconsin Bankers Association expressed its view that access to these accounts "should depend not only on legal eligibility, but also on an institution's demonstrated capabilities in governance, risk management, internal controls, and compliance."
Better Markets, which operates as a nonpartisan organization advocating for financial reform, characterized the payment accounts as an "irresponsible and reckless giveaway to the crypto industry" that should be rescinded.
The organization argued that the accounts would "implicitly and unnecessarily" broaden the Fed's mandate and stated that the categories of companies that would seek access to such accounts "present huge risks to the Federal Reserve System and the financial system."
The Federal Reserve will review the submitted feedback before finalizing its decision on the proposal, a process that could require several months to complete.