Federal Reserve Governor Christopher Waller proposed a new payment account on Oct. 21 that would grant stablecoin issuers and crypto firms direct access to Fed payment rails without full master account privileges.
The announcement at the Fed’s inaugural Payments Innovation Conference marked a reversal from the central bank’s guarded stance toward digital asset firms.
Waller described the concept as a “skinny” master account providing basic Fedwire and ACH connectivity while stripping out interest payments, overdraft facilities, and emergency lending. The new account creates a payments-only door that could reshape how stablecoin issuers settle dollar flows.
The account would carry balance caps, pay no interest, offer no daylight overdrafts, and exclude discount window borrowing.
Firms pursuing full master accounts, such as Custodia Bank, Kraken, Ripple, and Anchorage Digital, could benefit from faster approval timelines.
The conference assembled roughly 100 private sector innovators in what Waller framed as a new era in which “the DeFi industry is not viewed with suspicion or scorn” but is “to the conversation on the future of payments.”
Narrow banking and stablecoin structure
The payment account revives narrow banking, separating payments from credit creation.
Stablecoin issuers already operate as de facto narrow banks, holding backed reserves and moving money without lending, but lack direct Fed access and must partner with commercial banks to redeem tokens.
Waller’s proposal would let qualifying firms hold reserves directly with the Fed, back tokens with central bank money, and eliminate friction between banks and partners that creates bottlenecks during stress.
Direct Fed access would position compliant US stablecoins closer to narrow money, reducing bank-run risk.
If reserves sit at the Fed rather than commercial bank deposits, tokens become claims on central bank liabilities, eliminating credit risk.
Caitlin Long, CEO of Custodia Bank, framed the shift as correcting “the terrible mistake the Fed made in blocking payments-only banks from Fed master accounts.”
Operational improvements and trade-offs
Redemption flows would be more efficient if issuers posted and received payments directly rather than routing them through partner banks.
The improvement is mechanical, with fewer steps, lower latency, reduced dependency on bank hours, but material during heavy flows when redemption queues lengthen.
Issuers redeeming into partner accounts and initiating wires could complete both legs with Fed rails, compressing settlement from hours to near real-time and removing the risk that a partner bank freezes transfers.
Balance caps will determine utility for large issuers. Tether holds reserves in the tens of billions. Strict caps might accommodate operational liquidity but not the whole base, forcing a split of reserves.
The Fed’s goals, which are controlling balance sheet impact and limiting credit exposure, will shape caps, and issuers will weigh direct Fed access for a slice of reserves versus holding everything with commercial banks.
Ripple CEO Brad Garlinghouse argued nearly one week before Waller’s speech that crypto firms that meet banking-grade AML and KYC standards should receive banking-grade access to infrastructure, as CoinDesk reported.
Ripple filed a master account application in 2025. Direct Fed access would allow Ripple to settle dollar legs of cross-border transactions without using correspondent banks.
The logic applies to exchanges and custodians that rely on bank partners for fiat rails, direct Fed connectivity removes a dependency and a choke point.
Arthur Hayes, co-founder of BitMEX, offered a skeptical take:
“Imagine if Tether didn’t need to rely on a TradFi bank for its existence. The Fed is moving to destroy commercial banking in the US.”
The concern is disintermediation. If large issuers and payment processors access Fed rails directly, they no longer need commercial banks for basic services, eroding deposit bases while concentrating liquidity at the Fed.
The restrictions Waller outlined, such as no interest, balance caps, and no overdrafts, aim to thread the needle to support payments innovation without making the Fed the primary deposit taker or assuming credit risk on nonbanks.
Here’s what changes
Waller directed Fed staff to gather stakeholder feedback, but did not specify a timeline.
The GENIUS Act, signed into law in July 2025, established federal stablecoin requirements but did not grant direct Fed access.
Waller’s proposal fills that gap. Firms with pending applications could see faster decisions. Banks with payment subsidiaries may apply first, while crypto-native fintechs follow once the framework solidifies.
The payment account formalizes crypto’s entry into Fed-supervised infrastructure. If major issuers gain Fed accounts, the impact on liquidity and settlement quality becomes systemic.
Fed-backed reserves cannot be frozen by a commercial bank or subject to intermediate institution credit risk, compressing settlement risk during stress.
Regulatory arbitrage narrows as offshore issuers or those unwilling to meet GENIUS Act standards lose ground to US-regulated issuers offering Fed-backed tokens with structural safety advantages, consolidating market share among compliant firms.
Waller’s proposal opens a payment-only door into the Fed under balance caps and tight restrictions, revives narrow banking, positions compliant stablecoins as central bank-backed instruments, and creates a level playing field while disintermediating some commercial bank services.
The policy shift integrates crypto into the payments system under supervision, with direct settlement reducing fragility and recognizing that digital asset infrastructure has moved from the fringes to the core of how dollars move.
