ICBA expressed significant concerns with the Federal Reserve Bank of Kansas City’s approval of a master account for Kraken Financial, saying that granting nonbank entities and crypto institutions access to the master accounts poses risks to the banking system.
Details: After Kraken became the first crypto company to receive any form of a master account, ICBA President and CEO Rebeca Romero Rainey said in a national news release that there are significant risks to expanding direct Fed account access to institutions that operate outside the traditional banking regulatory framework. “The Fed should continue limiting master account access to institutions that meet the financial services sector’s highest standards,” she said.
‘Skinny’ Account Issues: ICBA last month told policymakers it has significant concerns about the Federal Reserve’s bank payment account prototype—also known as a “skinny” master account—saying it is not clear that payment accounts would be subject to sufficient guardrails or subject to a true prototype program.
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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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:
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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.
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In a friend-of-the-court brief last year, ICBA 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 decision to deny the application appropriately safeguarded the banking system from the risks posed by novel institutions.