The Federal Reserve has sparked debate by considering a proposal that would allow crypto exchanges and fintech companies limited access to its payment system via “skinny” master accounts. Currently, these businesses rely on intermediary banks holding master accounts at Federal Reserve Banks for transaction processing. The Fed is seeking public input through comments until the end of January.

Advantages and Streamlined Approvals

The proposal’s main benefit is supposed to be faster approval processes, enabling quicker transaction settlements. Payments would undergo a more efficient review process while retaining measures to reduce risks within the broader payment system.

Use in Stablecoin Transactions

Fed Governor Christopher Waller suggested during the October Payments Innovation Conference that such accounts could facilitate direct access for payment service providers, particularly relevant for stablecoin issuers involved in cross-border payments. Fintech platforms like Stripe or Block could similarly benefit from streamlined operations and transaction processing.

Account Details

The “skinny” accounts won’t earn interest nor provide access to the Fed’s credit facilities. They are capped at overnight balances, limited to the lesser of $500 million or 10% of an institution’s total assets.

Concerns and Challenges

This proposal could potentially disrupt traditional banking roles in processing stablecoin and fintech transactions, leading to concerns among banks about losing business. Faster clearance times raise fraud risks, and critics worry that inadequate safeguards against money laundering might be lacking, as the Fed does not supervise all institutions involved.

However, these issues are somewhat mitigated by the Fed’s ability to impose case-by-case restrictions and risk controls. The proposal also restricts accounts to only settling their holder’s transactions, preventing firms from offering correspondent banking services or processing payments for third parties.