Federal Reserve Governor Christopher Waller floated the idea of the central bank creating a “skinny master account” for crypto firms that would give them access to the Fed’s payment rails while keeping them away from a full Fed master account.
You’re reading State of Crypto, a CoinDesk newsletter that looks at the intersection of cryptocurrency and government. Click here to sign up for future editions.
The narrative
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 give those firms access to US payment rails while limiting their exposure to certain risks the Fed wants to avoid.
Why it matters
Firms 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 particularly benefit stablecoin issuers (and by extension the broader crypto sector).
To break it down
Under Waller’s proposal, which he called a “skinny master account,” the Fed would give businesses access to its payments rails, but not “the full suite of Federal Reserve financial services,” he said during his opening remarks at the Fed’s Payments Innovation Conference on Tuesday.
“To control the size of accounts and associated impacts on the Fed’s balance sheet, the Reserve Banks would not pay interest on balances in a checking account, and balance caps may be imposed,” Waller said. “These accounts would not have daylight overdraft privileges—if the balance hits zero, payments would be declined. They would not be eligible for discount window loans or have access to all Federal Reserve payment services, for which the Reserve Banks cannot control the risk of daylight overdrafts.”
Linda Jeng, CEO of Digital Self Labs and lecturer at Georgetown University, compared Waller’s proposal to the idea of narrow banks that act as banks but don’t lend money.
“Payment stablecoin issuers already operate as a form of narrow banking – holding fully backed reserves and facilitating payments rather than lending. Yet the GENIUS Act does not give them direct access to Fed payment rails, the one step that would integrate these stablecoin issuers into the US monetary system,” she wrote in a statement to CoinDesk.
This would have the added benefit of ensuring that stablecoin issuers are backed by the Fed itself, giving the Fed more tools to deal with any systemic risks, she wrote.
In particular, Waller’s proposal could benefit stablecoin issuers, especially in light of the GENIUS Act and the rapid ongoing growth of this segment of the crypto market. Several companies have already applied for master account access, hoping to move past 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 a global competition for market share in stablecoins,” he said.
Waller noted in his speech that “this is just a prototype idea to give some clarity on how things could change.”
“As the Federal Reserve staff examines this idea, we will engage 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
- 14:00 UTC (10:00 am ET) The Senate Banking Committee said it would hold a nomination hearing on a number of candidates, including for Travis Hill to become chairman of the Federal Deposit Insurance Corporation (Hill is currently the acting chairman).
If you have thoughts or questions about what I’ll be discussing next week or any feedback you’d like to share, feel free to email me at [email protected] or find me on Bluesky @nikhileshde.bsky.social.
You can also join the group conversation on Telegram.
See you next week!
