Christopher Waller, a Governor at the Federal Reserve, unveiled a new concept for payment accounts on October 21st. This proposal would allow stablecoin creators and other crypto-focused businesses to directly access the Fed’s payment systems. However, this access would not include the full privileges of a standard master account.
This announcement, made at the Fed’s inaugural Payments Innovation Conference, signals a potential shift from the central bank’s previously cautious approach to digital asset companies.
Waller’s vision involves a “skinny” master account that grants essential connectivity to Fedwire and ACH. However, it would exclude features like interest payments, overdraft protections, and emergency loans. This new type of account would essentially create a payment-focused gateway, potentially revolutionizing how stablecoin issuers manage dollar transactions.
Specifically, these accounts would have limits on the amount of money they can hold, would not accrue any interest, would not allow for daylight overdrafts, and would not be eligible for discount window borrowing.
Companies currently seeking full master accounts, including Custodia Bank, Kraken, Ripple, and Anchorage Digital, might see their application processes expedited as a result of this new proposal.
The conference brought together around 100 innovators from the private sector. Waller presented this as a new chapter where “the DeFi industry is not viewed with suspicion or scorn” but instead “contributes to the conversation on the future of payments.”
The Resurgence of Narrow Banking and Stablecoin Structure
This payment account concept echoes the principles of narrow banking by separating payment processing from credit generation.
Many stablecoin issuers already function similarly to narrow banks. They maintain reserves to back their tokens and facilitate money transfers without engaging in lending activities. However, they currently lack direct access to the Federal Reserve and must rely on partnerships with traditional commercial banks to facilitate token redemptions.
Under Waller’s plan, eligible firms could hold reserves directly at the Fed, backing their tokens with central bank funds. This would streamline the process and reduce the reliance on bank partnerships, which can sometimes create bottlenecks during periods of high demand.
Direct access to the Fed could position compliant U.S. stablecoins closer to the concept of narrow money, thereby decreasing the risk of bank runs.
By holding reserves at the Fed instead of in commercial bank accounts, tokens would effectively become claims against central bank liabilities, eliminating credit risk.
Caitlin Long, CEO of Custodia Bank, described this development as correcting “the terrible mistake the Fed made in blocking payments-only banks from Fed master accounts.”
Operational Efficiencies and Considerations
Redemption processes would likely become more efficient if stablecoin issuers could directly send and receive payments rather than routing them through partner banks.
This improvement is largely procedural, involving fewer steps, reduced processing times, and less dependence on traditional banking hours. It would be particularly beneficial during periods of high transaction volume when redemption queues tend to lengthen.
Issuers redeeming funds into partner accounts and initiating wire transfers could complete both actions directly through the Fed’s systems. This could reduce settlement times from several hours to near real-time and eliminate the risk of partner banks freezing transfers.
Balance limits will be a crucial factor determining the utility of these accounts for large issuers. For example, Tether holds reserves worth tens of billions of dollars. Strict caps may only accommodate operational liquidity, forcing issuers to divide their reserves.
The Fed’s objectives, which include managing its balance sheet impact and limiting credit risk, will likely influence the setting of these caps. Issuers will then need to weigh the benefits of direct Fed access for a portion of their reserves against the alternative of holding all their reserves with commercial banks.
Ripple CEO Brad Garlinghouse, in comments made nearly a week before Waller’s announcement, argued that crypto firms meeting banking-grade AML (Anti-Money Laundering) and KYC (Know Your Customer) standards should be granted equivalent access to financial infrastructure, as reported by CoinDesk.
Ripple submitted a master account application in 2025. Direct access to the Fed would allow Ripple to settle the dollar-denominated portions of cross-border transactions without relying on correspondent banks.
This logic extends to exchanges and custodians that depend on bank partnerships for fiat currency transactions. Direct Fed connectivity eliminates this dependence and a potential bottleneck.
Arthur Hayes, co-founder of BitMEX, offered a critical perspective:
“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 core concern revolves around disintermediation. If major issuers and payment processors gain direct access to Fed systems, they may no longer require commercial banks for basic services, potentially eroding their deposit bases and concentrating liquidity at the Fed.
The restrictions outlined by Waller, such as the absence of interest payments, balance limitations, and no overdrafts, aim to strike a balance. The goal is to encourage innovation in payments without transforming the Fed into the primary deposit holder or assuming credit risk on non-bank entities.
Key Changes and Implications
Waller has instructed Fed staff to solicit feedback from relevant parties, but a specific timeline for implementation has not yet been provided.
The GENIUS Act, which was enacted in July 2025, established federal requirements for stablecoins but did not address direct access to the Fed.
Waller’s proposal aims to fill this void. Companies with pending applications could potentially see faster decisions. Banks with payment-focused subsidiaries may be the first to apply, with crypto-native fintech companies following once the regulatory framework is fully established.
This payment account formalizes crypto’s integration into Fed-supervised infrastructure. If significant issuers secure Fed accounts, the resulting impact on liquidity and settlement quality could become systemically important.
Reserves held at the Fed cannot be frozen by a commercial bank or subjected to credit risk from intermediate institutions, thereby mitigating settlement risk during periods of financial stress.
Regulatory arbitrage could diminish as offshore issuers or those unwilling to meet the GENIUS Act’s standards lose ground to U.S.-regulated issuers offering Fed-backed tokens with inherent safety advantages. This could lead to a consolidation of market share among compliant firms.
Waller’s proposal unlocks a payment-focused gateway to the Fed, subject to balance limits and strict regulations. This revives the concept of narrow banking, positions compliant stablecoins as instruments backed by the central bank, and promotes a more level playing field while displacing some services traditionally provided by commercial banks.
This policy shift integrates crypto into the payment system under supervision. Direct settlement reduces fragility and acknowledges the evolution of digital asset infrastructure from a fringe element to a core component of how dollars are transferred.