Fed seeks public input on ‘skinny’ master account concept

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• Key Insight: The Fed is exploring whether to create a limited payments account for certain eligible entities, an initial step that could lead to a formal rulemaking down the road.
• Expert Quote: “These new payment accounts would support innovation while keeping the payments system safe.” — Fed Gov. Christopher Waller
• What’s at stake: Fed Gov. Christopher Waller has said that he is aiming for the Fed to issue a final rule on the new accounts by the end of 2026.

The Federal Reserve Board is seeking public comment on a proposed “skinny” master account for eligible institutions, an effort aimed at streamlining access to the central bank’s payment services.
In a notice published Friday, the Fed said the accounts would be tailored to firms with limited needs for payment and settlement services. The proposal would “support innovation and promote a safe and efficient payment system,” the board said.

“These new payment accounts would support innovation while keeping the payments system safe,” Fed Gov. Christopher Waller said in a written statement. “This request for information is a key first step to ensuring that the Fed is responsive to changes in how payments are made.”

The request for information, or RFI, was approved in a 6-1 vote. Fed Gov. Michael Barr dissented, citing concerns that the proposal does not adequately address oversight or safeguards to prevent misuse.

“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 by institutions we do not supervise,” wrote Barr. 

According to the notice, the proposed payment account would differ from a traditional master account in several ways. It would not pay interest, provide access to central bank credit or expand legal eligibility for Fed payment services. The accounts would also be subject to balance caps.

Greg Baer, CEO of the Bank Policy Institute, said the proposal warrants closer examination to ensure risks are addressed.

“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,” Baer said in a statement Friday. “Master account applications are carefully reviewed because insufficient protections can harm the structure, stability and resilience of the U.S. payments system.”

The Fed expects to issue a final rule on the new accounts by the end of next year.

Waller, who chairs the central bank’s Committee on Payments, Clearing and Settlement, first floated the idea of creating a “skinny” master account focused on payments for certain state-chartered banks or fintechs.

“Why do we just have one master account?” he asked rhetorically in early November. “Why not just tailor this thing to the risk of the banks that are asking for it? Maybe we’ll give you a master account, but it doesn’t have all the bells and whistles.”

Nonbank firms, particularly in payments and financial technology, have been rapidly gaining market share, prompting regulators to consider how to bring them into the regulatory framework.

A recent report by the Financial Stability Board found that nonbank assets grew 9.4% last year, compared with 4.7% growth in the banking sector. Nonbank financial institutions now hold about 51% of global financial assets, or roughly $257 trillion.