Federal Reserve Explores Limited Payment Accounts for Financial Institutions

The Federal Reserve Board has initiated a request for public input regarding the creation of a new type of "payment account" aimed at eligible financial institutions. This initiative is a response to the rapid evolution of the payments industry and the increasing demand for access to Federal Reserve payment services by institutions with innovative business models. The proposed payment accounts would be specifically designed for limited payment and settlement needs, potentially streamlining the review process for applications.

Federal Reserve Board requests public input on “payment account,” which eligible financial institutions could use for the limited purpose of clearing and settling their paymentsFed seeks public input on 'skinny' master account concept

These payment accounts would differ significantly from traditional master accounts. They would not accrue interest, provide access to Federal Reserve credit, or expand legal eligibility for payment services. Additionally, these accounts would be subject to balance caps, which would help mitigate risks associated with their use. According to Federal Reserve Governor Christopher J. Waller, the introduction of these accounts aims to support innovation while maintaining the safety of the payments system.

Federal Reserve Board requests public input on “payment account,” which eligible financial institutions could use for the limited purpose of clearing and settling their paymentsFed seeks public input on 'skinny' master account concept

The Federal Reserve has set a comment period of 45 days following the publication of the proposal in the Federal Register. A final rule regarding the new payment accounts is anticipated by the end of 2026. This timeline reflects the Fed's commitment to ensuring that its policies remain responsive to the evolving landscape of payment methods.

Federal Reserve Board requests public input on “payment account,” which eligible financial institutions could use for the limited purpose of clearing and settling their payments

The proposal has faced scrutiny from within the Federal Reserve itself. Governor Michael Barr dissented during the vote to approve the request for information, expressing concerns that the proposal lacks adequate safeguards against potential misuse, such as money laundering and terrorist financing. Barr emphasized the need for more specific protections to ensure that the accounts do not pose risks to the financial system.

Fed seeks public input on 'skinny' master account concept

Industry experts have also called for careful examination of the proposal. Greg Baer, CEO of the Bank Policy Institute, highlighted the necessity for thorough scrutiny to address risks related to credit, settlement, and illicit finance. He noted that while the proposal aims to establish minimum protections for expanded access to Federal Reserve accounts, it requires further evaluation to ensure comprehensive risk mitigation.

Fed seeks public input on 'skinny' master account concept

In a statement regarding the initiative, Governor Waller remarked, "These new payment accounts would support innovation while keeping the payments system safe." He underscored the importance of the request for information as a foundational step in adapting to changes in payment methodologies.

Fed seeks public input on 'skinny' master account concept

As the Federal Reserve seeks public input on the proposed payment accounts, stakeholders from various sectors, including state-chartered banks and fintech companies, are expected to weigh in on the potential implications of this initiative. The outcome of this consultation process will play a crucial role in shaping the final regulatory framework for these accounts.

Fed seeks public input on 'skinny' master account concept

• "These new payment accounts would support innovation while keeping the payments system safe." — Fed Gov. Christopher Waller

Fed seeks public input on 'skinny' master account concept

• "I cannot support this request for information because it is not sufficiently specific about safeguards to protect against the accounts being used for money laundering and terrorist financing." — Fed Gov. Michael Barr

Fed seeks public input on 'skinny' master account concept

• "Today's proposal attempts to establish minimum protections for expanded Federal Reserve account access but warrants further scrutiny to ensure that credit, settlement, illicit finance and other risks would be fully mitigated." — Greg Baer, CEO of the Bank Policy Institute

Fed seeks public input on 'skinny' master account concept