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The Fed is preparing to take a new step regarding access to payment infrastructure. Under a new regulation opened for public consultation, the Fed is considering creating a limited-purpose “payment account” (commonly referred to as a “weak master account”) as an alternative to full-fledged “master accounts.”
According to the Fed, this new payment account model will allow eligible financial institutions to access the Fed’s payment networks solely for payment clearing and reconciliation operations. However, unlike existing master accounts, these accounts will not pay interest, will not provide access to Fed loans, and will be subject to balance caps. Furthermore, this structure will not expand or change existing legal eligibility criteria for accessing the Fed’s payment services.
The idea was first raised in October by Federal Reserve Board member Christopher Waller. Waller argued that the rapid transformation and new business models in the payments sector have increased the need for more flexible yet low-risk access mechanisms. The Fed’s announcement today stated that such “payment accounts” could reduce risks to the payment system and allow applications to undergo a faster review process.
Christopher Waller stated in his remarks on the subject, “These new payment accounts will support innovation while keeping the payment system secure. Soliciting public feedback is a critical first step for the Fed to adapt to the changing dynamics of how payments are made.”
The public consultation process has officially begun following the Fed’s call. Comments on the regulation will be accepted for 45 days from the date of publication of the proposal.
On the other hand, the cryptocurrency sector is also receptive to this proposal. Ripple argued that the idea of a limited-scope FED payment account designed for non-bank financial institutions could be a significant turning point, alleviating concerns about financial stability and competition. Ripple’s Chief Legal Officer, Stu Alderoty, previously stated, “I think it’s a very attractive idea and should give traditional banks a degree of confidence as well.”
*This is not investment advice.