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HomeFederal financial regulationThe FedFed governor warns of ‘false expectations’ over timeline of applying guidelines for access to Fed services

Fed governor warns of ‘false expectations’ over timeline of applying guidelines for access to Fed services

August 17, 2022 The Fed 0

“False expectations” may be raised about the timeline for evaluating and acting on requests for Federal Reserve account access from non-bank entities based on new guidelines issued earlier this week, a Fed governor said Wednesday.

In remarks to a conference in Little Rock, Ark., Federal Reserve Board Gov. Michelle Bowman said work remains to be completed before a process is established to fully implement the guidelines, which were issued Aug. 15.

The guidelines were issued, at least partly the Fed said,  by the growth of institutions offering new types of financial products or developing “novel charters.”

Many have requested so-called “master accounts” and payment services offered by Federal Reserve banks, the agency said. The guidelines will be used by the banks to evaluate the requests with a “transparent and consistent set of factors.”

But Bowman indicated that those seeking to establish account access based on the new guidelines may have to wait, at least a while longer. “In the meantime, there is a risk that the guidelines could establish false expectations regarding the timeline for evaluating and acting on these requests,” she said.

She said that requests for accounts and services from non-federally insured institutions would generally be subject to a higher standard of review. “The Board expects Reserve Banks to collaborate on reviews of account and service requests, and conduct ongoing monitoring of approved accountholders, to ensure that the guidelines are implemented in a consistent manner,” she said.

In other comments, Bowman suggested that the new “FedNow” payments service, which is scheduled to be available by mid-2023, could obviate the need for a central bank digital currency (CBDC), which is being studied now by the central bank. “My expectation is that FedNow addresses the issues that some have raised about the need for a CBDC,” she said.

She asserted that the new payments system will “help transform the way payments are made through new services that allow consumers and businesses to make payments conveniently, in real time, on any day, and with immediate availability of funds for receivers.”

“Our assessment of these benefits has not changed even as we consider whether a central bank digital currency might fit into the future U.S. money and payments landscape.”

Guidelines released this week on how Federal Reserve Banks will evaluative requests for account access from non-bank entities may raise “false expectations” about the timeline for evaluating and acting on those requests, a Fed governor said Wednesday.

She also outlined supervisory expectations that the Fed is developing regarding digital asset-related activities. Those include, she said:

  • custody of crypto-assets;
  • facilitation of customer purchases and sales of crypto-assets;
  • loans collateralized by crypto-assets, and;
  • issuance and distribution of stablecoins by banking organizations.

“Before a bank begins to engage in or offer crypto-asset-related services, it must seriously and carefully consider the risks involved—both to the bank and its customers. The recent turmoil in the digital-asset industry only underscores that point,” she said.

On Tuesday (Aug. 16), the Fed issued a supervisory letter that urged banks to assess whether engaging in crypto-asset-related activities is legally permissible and determining whether any regulatory filings are required prior to engaging in the activities.

Remarks by Federal Reserve Gov. Michelle W. Bowman at the VenCent Fintech Conference, Little Rock, Arkansas

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