By Pete Schroeder
WASHINGTON, May 20 (Reuters) – The U.S. Federal Reserve proposed Wednesday adopting a new, more limited form of a payment account that would allow firms like fintechs to move money across the Fed’s payment rails without enjoying all the backstops available to traditional banks.
In a statement, the Fed said the proposed accounts would not include access to intraday credit or the Fed’s discount window, nor would firms earn interest on reserves held at the Fed. The proposal stems from earlier work the Fed did exploring the slimmed down accounts, as it explores ways to balance granting more firms access to its payments infrastructure without injecting undue risk into the financial system.
The proposal also comes one day after President Donald Trump signed an executive order asking the Fed to review its policies on payment accounts and explore ways to expand access.
Fed master accounts are often likened to bank accounts for banks, letting accountholders move funds directly via the Fed’s payment rails. Under the law, depository institutions are eligible for such accounts, but questions have emerged about how to address a growing number of uninsured depository institutions seeking access, including many with ties to the crypto sector. While the Fed more closely scrutinizes applications by uninsured depository institutions, such entities are subject to less rigorous ongoing oversight than insured banks.
Fed Governor Michael Barr dissented from the proposal, saying it lacked sufficient safeguards to ensure the accounts would not be used for illicit finance.
The Fed said the proposal would not expand the legal qualifications for who can receive accounts or access to payment services, and the ultimate discretion would still lie with regional Fed banks across the country. However, the Fed said that while the proposal is pending, it has asked the regional banks to pause decisions on account requests already submitted by nontraditional firms to ensure “consistent implementation.”
(Reporting by Pete Schroeder; Editing by Franklin Paul and Daniel Wallis)
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