Key Highlights
- The Fed is seeking public comment on a limited “payment account” for legally eligible financial institutions.
- Payment account holders could use Fedwire, FedNow and other approved services, but not FedACH.
- The proposal does not expand legal eligibility and would pause Tier 3 access decisions during review.
The Federal Reserve Board has requested public comment on a proposal to create a limited-purpose “payment account” that legally eligible financial institutions could use to clear and settle payments directly through Federal Reserve services.
The proposal is significant for crypto, fintech and payments-focused firms because many non-traditional institutions have been seeking more direct access to Federal Reserve payment rails to reduce settlement delays and dependence on intermediary banks. The Fed said many of these requests have come from institutions that are not federally insured.
Under the proposal, payment account holders would not receive the full benefits of a traditional master account. They would not have access to intraday credit, the discount window, or interest on balances held at a Reserve Bank. Transactions that could create an overdraft would be automatically rejected.
The Fed’s memo says eligible payment account holders could access services where overdrafts can be automatically blocked, including Fedwire Funds Service, FedNow Service, National Settlement Service, and free-of-payment Fedwire Securities transfers. FedACH would not be available under the proposal.
The plan also sets a proposed closing balance limit based on expected payment activity, capped at $1 billion. The Fed’s staff memo says payment account requests would generally be reviewed within 90 calendar days after all requested documents are received.
The timing adds to the political weight of the proposal. On May 19, President Donald Trump signed an executive order asking the Fed to evaluate access to Reserve Bank payment accounts and services by uninsured depository institutions and non-bank financial companies, including firms engaged in digital assets and other novel financial activities.
However, the Fed made clear that the proposal would not expand legal eligibility for Federal Reserve accounts or payment services. It would only create a restricted account structure for institutions that are already legally eligible. The Board is also encouraging Reserve Banks to pause decisions on Tier 3 access requests until the policy process is completed.
The proposal passed the Board with support from Chair Pro Tempore Jerome Powell, Vice Chair Philip Jefferson, Vice Chair for Supervision Michelle Bowman, Governor Lisa Cook, Governor Stephen Miran and Governor Christopher Waller. Governor Michael Barr voted against it.
Barr said the proposal does not include strong enough safeguards against money laundering and terrorist financing risks for institutions the Fed does not supervise. Cook supported seeking comment but asked for public feedback on the systemic impact of granting clearing and settlement capabilities to eligible firms without deposit insurance or comprehensive federal oversight.
The public comment period will close 60 days after the proposal is published in the Federal Register.
Also Read: Trump Orders Fed to Evaluate Direct Payment-Account Access for Crypto Firms
