Federal Reserve Governor Christopher Waller has floated the idea of the central bank creating a “lean master account” for crypto companies, which would give them access to the Fed’s payment lanes while keeping them away from a full Fed master account.
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The story
Federal Reserve Governor Christopher Waller suggested this week that crypto companies could use a limited version of the Fed’s main account system, which would allow these companies to access U.S. payment lanes while limiting their exposure to some risks the Fed would like to avoid.
Why it matters
Companies like Custodia have already spent years trying to gain access to a Fed master account, which would give them a direct line to the central bank’s payments infrastructure and relieve them of the need to work with an intermediary bank. Waller’s proposal for more limited access could benefit stablecoin issuers in particular (and by extension, the broader crypto sector).
Break it down
Under Waller’s proposal, which he called a “lean master account,” the Fed would allow businesses to access its payment channels, but not “the full range of Federal Reserve financial services,” he said Tuesday during his keynote speech at the Fed’s Payments Innovation Conference.
“To control account sizes and associated impacts on the Fed’s balance sheet, Reserve Banks would not pay interest on balances in a payment account, and balance caps could be imposed,” Waller said. “These accounts would not have daylight overdraft privileges – if the balance reaches zero, payments will be rejected. They would not be eligible for discount window borrowing or have access to any Federal Reserve payment services for which the Reserve Banks cannot control the risk of daylight overdrafts.”
Linda Jeng, CEO of Digital Self Labs and a lecturer at Georgetown University, likened Waller’s proposal to the idea of narrow banks, which act like banks but don’t lend funds.
“Payment stablecoin issuers already operate as a form of narrow banking – holding fully collateralized reserves and facilitating payments rather than loans. Yet the GENIUS Act does not grant them direct access to the Fed’s payment rails, the only step that would integrate these stablecoin issuers into the U.S. monetary system,” she wrote in an opinion piece for CoinDesk.
This would have the added benefit of ensuring that stablecoin issuers are backed by the Fed itself, giving the Fed more tools to manage any possible systemic risk, she wrote.
Waller’s proposal in particular could benefit stablecoin issuers, especially in light of the GENIUS Act and the continued rapid growth of this segment of the crypto market. Several companies have already requested access to a master account in hopes of stopping working with third-party banks.
Former World Bank President David Malpass said at the ACI Worldwide Payments Summit that the proposal, if passed, would help “defend the purchasing power of the dollar,” according to a transcript of his comments shared with CoinDesk.
“There is global competition for stablecoin market share,” he said.
Waller noted in his speech that “this is just a prototype idea to clarify how things might change.”
“As the Federal Reserve staff reviews this idea, we will collaborate with all interested stakeholders to hear perspectives on the pros and cons of this approach,” Waller continued. “You will hear more about this soon.”
THURSDAY
- 2:00 p.m. UTC (10:00 a.m. ET) The Senate Banking Committee announced it will hold a nomination hearing on a number of nominees, including for Travis Hill to become chairman of the Federal Deposit Insurance Corporation (Hill is currently the acting chairman).
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