ICBA told policymakers it has significant concerns about expanding direct Federal Reserve account access to institutions that operate outside the traditional banking regulatory framework.
Details: In a letter to the Federal Reserve responding to its request for information on the reserve bank payment account prototype, also known as a “skinny” master account, ICBA:
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Expressed significant concerns about expanding direct Federal Reserve account access to institutions that operate outside the traditional banking regulatory framework.
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Said it is not clear that payment accounts would be subject to sufficient guardrails or subject to a true “prototype” program where the number of approved applicants is limited, time-barred, and subject to program enhancements to tighten regulatory scrutiny or off-ramp approved applicants.
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Urged the Fed to design measures for the payment account prototype to ensure a built-in review structure and clear off-ramps if risks materialize.
Background:
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The Fed in December requested public comment on the proposed payment account, which eligible financial institutions could use for the limited purpose of clearing and settling their payments on Fed payment services, such as FedNow and Fedwire.
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The RFI followed Fed Governor Christopher Waller’s October speech previewing the idea of a “skinny” master account that would provide basic Fed payment services to legally eligible institutions.
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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.
More:
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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-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.