The Federal Reserve requested public comment on a proposed "payment account," which eligible financial institutions could use for the limited purpose of clearing and settling their payments on Federal Reserve payment services, such as FedNow and Fedwire.
Details: In a new request for information, the Fed said:
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New business models are seeking access to Fed payments services.
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The payment account would be tailored to meet the limited needs of eligible institutions seeking payments and settlement services.
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A payment account would be distinct from the master accounts that financial institutions currently use to access payments services from the Fed—it would not pay interest, not have access to Fed credit, or carry an overnight balance.
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A payment account would not expand or otherwise change legal eligibility for access to payments services from the Fed.
‘Skinny’ Master Account: Announced by Fed Governor Christopher Waller, the RFI follows Waller’s October speech previewing the idea of a “skinny master account” that would provide basic Fed payment services to legally eligible institutions.
Background: Nonbank entities and crypto institutions are trying to obtain access to master accounts—industry settlement accounts that are traditionally limited to insured depository institutions that are highly regulated and pose limited risk to the banking system.
ICBA View: ICBA is concerned with any proposal to grant payment rail access to lightly regulated entities. As reported in Independent Banker magazine, ICBA supports limiting Fed account access to institutions that meet the financial services sector’s highest standards to protect the safety of the U.S. banking system.
Master Account Developments:
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In a friend-of-the-court brief, ICBA last year told a U.S. appellate court that federal law provides the Federal Reserve Banks with the discretion to deny or grant master account access.
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A federal judge in 2024 largely upheld the Fed’s master account denial of Custodia Bank, a Wyoming state-chartered special-purpose depository institution that focuses on crypto services and other novel activities and is not FDIC-insured.
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ICBA commended the Fed’s response to the Custodia application, saying the agency’s actions appropriately safeguard the banking system from the risks posed by novel institutions.
Next Steps: The deadline for comment on the Fed RFI is 45 days after publication in the Federal Register. ICBA will be submitting comments.