Federal Reserve President Christopher Waller has floated the idea of the central bank creating “skinny master accounts” for crypto companies, keeping them away from the Fed’s full master accounts but giving them access to the Fed’s payments rails.
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story
Federal Reserve President Christopher Waller suggested this week that crypto companies could take advantage of a limited version of the Fed’s master account system, giving those companies access to U.S. payment rails while limiting their exposure to certain risks the Fed wants to avoid.
why is it important
Companies like Custodia have already spent years trying to gain access to the Fed’s master accounts. This allows for direct connectivity to central bank payment infrastructure, reducing the need for coordination with intermediary banks. Waller’s proposal to make access more restrictive could particularly benefit stablecoin issuers (and by extension the broader crypto sector).
break it down
Under the proposal, which Waller called a “skinny master account,” the Fed would give companies access to its payments rails but not the “full suite of Federal Reserve financial services,” he said in opening remarks at the Fed’s Payments Innovation Conference on Tuesday.
“To control account size and the associated impact on the Fed’s balance sheet, the Reserve Bank may not pay interest on settlement account balances and may be subject to balance limits,” Waller said. “These accounts do not have daytime overdraft privileges. Once their balance reaches zero, payments are denied. These accounts are not eligible to borrow at the discount window, nor do they have access to all Federal Reserve Bank payment services where the Reserve Bank has no control over the risk of daytime overdrafts.”
Linda Jenn, CEO of Digital Self Labs and a lecturer at Georgetown University, likened Waller’s proposal to the idea of a narrow bank, which functions as a bank but doesn’t lend money.
“Payment stablecoin issuers already operate as a type of narrow bank, holding fully backed reserves and facilitating payments rather than loans. However, the GENIUS Act does not grant them direct access to the Fed payment rails, a step toward integrating these stablecoin issuers into the U.S. monetary system,” she wrote in an opinion piece for CoinDesk.
This would allow stablecoin issuers to receive backing from the Fed itself, with the added benefit of giving the Fed more tools to manage any possible systemic risks, he wrote.
Waller’s proposal could benefit stablecoin issuers, especially given the GENIUS Act and the rapid growth of this part of the cryptocurrency market. Several companies have already applied for access to master accounts in hopes of ceasing partnering with third-party banks.
Former World Bank President David Malpass said at the ACI Worldwide Payments Summit that the proposal, if passed, would help “protect the purchasing power of the dollar,” according to a recording of his comments shared with CoinDesk.
“There is a global competition for stablecoin market share,” he said.
“This is just a prototype idea to clarify how things will change,” Waller said in his talk.
“As Federal Reserve staff consider this idea, we will engage with all interested stakeholders to hear their views on the benefits and drawbacks of this approach,” Waller continued. “We’ll be hearing more about this in the near future.”
Thursday
- 2:00 a.m. UTC (10:00 a.m. ET) The Senate Banking Committee announced that it will hold nomination hearings on several candidates, including Travis Hill to become chairman of the Federal Deposit Insurance Corporation (Hill is currently acting chairman).
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