The U.S. Federal Reserve has proposed a new, more limited form of payment account, designed to allow firms, including fintechs, to move money across the Fed’s payment infrastructure. Announced on Wednesday, the proposal outlines accounts that would explicitly exclude access to intraday credit or the Fed’s discount window, nor would firms earn interest on reserves held at the central bank. This initiative stems from the Fed’s ongoing exploration into balancing the expansion of access to its payment systems with the critical need to mitigate undue risk within the financial system. The timing of the proposal is notable, following closely on the heels of a Presidential executive order requesting the Fed to review its policies on payment accounts and consider ways to broaden access.
The U.S. Federal Reserve, which serves as the central bank of the United States, oversees the nation’s monetary policy, supervises banks, and maintains financial stability, including operating key payment systems. Fed master accounts are often likened to bank accounts for banks, enabling accountholders to directly transfer funds via the Fed’s payment rails. Under current law, depository institutions are eligible for such accounts; however, questions have emerged regarding how to address a growing number of uninsured depository institutions seeking access, many of which have ties to the burgeoning crypto sector. These entities are subject to less rigorous ongoing oversight than their insured banking counterparts, posing a regulatory challenge.
Notably, Fed Governor Michael Barr dissented from the proposal, expressing concerns that it lacked sufficient safeguards to prevent the accounts from being used for illicit finance. The Fed clarified that the proposal does not intend to expand the legal qualifications for who can receive accounts or access payment services, with ultimate discretion remaining with the regional Fed banks across the country. In an interim measure, while the proposal is pending, the Fed has requested its regional banks to pause decisions on account requests already submitted by nontraditional firms, aiming to ensure consistent implementation of the new framework.
