- The U.S. Federal Reserve is exploring a new type of limited “payment accounts” to improve access to its payment system.
- The Fed is requesting public input on how to design these accounts for firms using new technology in payments.
- The proposed accounts would not earn interest, offer credit, and would have limits on balances.
- Some Fed officials express concerns about risks such as money laundering and insufficient safeguards.
The U.S. Federal Reserve announced on December 19 it is starting a process to create “payment accounts” that would allow financial firms more straightforward access to its payment infrastructure. This initiative aims to offer a scaled-down alternative to the existing master accounts, which can be challenging for firms, especially those involved in cryptocurrency, to obtain. The Fed is seeking feedback from the public over the next 45 days on how to design and implement these new accounts, according to its press release.
Master accounts provide direct entry points for financial institutions to the Fed’s payment systems, but their stringent requirements have posed difficulties for some fintech and crypto companies. The Fed’s new “payment accounts” would provide limited access specifically for clearing and settling payment activities but would exclude features like earning interest or access to Fed credit. Moreover, accounts would have balance caps to control risk, as detailed in the board memo.
Governor Christopher Waller emphasized the potential benefits, stating these accounts would “support innovation while keeping the payments system safe” and called the request for information “a key first step” in adapting the Fed’s services to modern payment methods. Waller had previously advocated for such a “skinny” master account version in October.
However, Governor Michael Barr, who served as the Fed’s regulatory chief before 2017, voiced opposition to the move. He criticized it for lacking sufficient detail on protecting against risks like money laundering and terrorist financing, especially given the difficulty in supervising institutions that would use these accounts. Barr’s statement of opposition highlights ongoing debates within the Fed about how to balance innovation with safety and oversight.
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