US Fed Opens Pathway for Crypto Banks to Tap Central Banking System
The U.S. Federal Reserve or Fed said on Monday that it is publishing its final policy guidance for novel financial services institutions to access its "master accounts," something these organizations need to participate in the global payment system.
Monday is announcement by the Fed would apparently move the country is central bank one step closer to perhaps allowing Wyoming special purpose depository institutions (SPDI), like Custodia (formerly Avanti) and Kraken Bank, access to these master accounts so that they would not need any intermediate banks. The Fed first proposed policy guidance last year, opening up a request-for-comment procedure. Nearly 300 respondents submitted comments, leading to a second public feedback procedure earlier this year.
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In a statement, Fed Vice Chair Lael Brainard said, "The new guidelines provides a consistent and crystal-clear process to assess requests for Federal Reserve accounts and access to payment services in order to support a secure, inclusive, and innovative payment system."
The policy guidance is largely in lines to what was first proposed in 2021, and will create a multi-tiered arrangement allowing the central bank to adapt its assessment process for granting access depending on what kind of financial services institution is applying. Each such tier corresponds to a respectively more stringent review process.
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Under the policy guidance, Tier 1 banks would be federally insured. Tier 2 banks would not be federally insured but are still "subject to prudential supervision by a federal banking agency."
The third tier consists of organizations that are "not federally insured and not subject to prudential supervision by a federal banking agency," which would most probably apply to the Wyoming Cryptocurrency banks.
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According to a statement released with the guidance and press release, the central bank received remarks after publishing both its initially proposed policy guidance in 2021 and its updated policy guidance earlier this year. Many of these commenters filed a form letter but the central bank appears to have received a hair under 70 unique responses.
"Many commenters, on another hand, recommended that the Proposed Policy Guidelines should provide a more robust and challenging path for financial services institutions with novel charters to gain access to master accounts and services. Many of these commenters argued that the Proposed Policy Guidelines should subject non-federally insured financial institutions to the same types of requirements as apply to federally insured depository institutions, regardless of the institution is business model," the document said.
Long road
Custodia and Kraken both firms applied for master account access in 2021, just before the Fed published its initial guidelines.
David Kinitsky, the CEO of Kraken Bank, said at that time that the proposal was a positive step for his firm.
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“There is nothing novel in terms of the reasons that they are including here. Its exactly the type of things that the Federal Reserve is looking at, in terms of risk to the reserve itself, risk to the payment system [and] risk to the economy," he said.
Both firms then received routing numbers earlier this year, a key step in gaining access to master accounts (though not telling that the firms will for sure receive access to master accounts).
Still, Custodia sued the central bank in June on claims of violating a mandatory one-year time limit in deciding whether to grant the Wyoming firm access or not.
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