New “payment accounts” – referred to by a key sponsor as “skinny master accounts” – are under consideration by the Federal Reserve to deal with the anticipated influx of digital assets and other pressures on the payment systems, a Fed governor said Tuesday.
In remarks to the Fed-sponsored Payments Innovation Conference in Washington, D.C., Fed Board Gov. Christopher J. Waller said the new “payments accounts” would be available to all banks and other institutions that are “legally eligible for an account and could be beneficial for those focused primarily on payments innovations.”
Waller said he has asked Fed staff to explore the concept of the accounts. He said the accounts would be targeted to provide basic Fed payment services to banks and others that now handle payment services primarily through a third-party bank that has a full-fledged master account.
“There are many eligible firms engaged in substantial payments activities that may not want or need all the bells and whistles of a master account, or access to the full suite of Federal Reserve financial services, to successfully innovate and provide services to their customers,” Waller said.
“The idea is to tailor the services of these new accounts to the needs of these firms and the risks they present to the Federal Reserve Banks and the payment system,” Waller added. “Accordingly, and importantly, these lower-risk payment accounts would have a streamlined timeline for review. Payments innovation moves fast, and the Federal Reserve needs to keep up.”
Waller described a prototype account (which he nicknamed a “skinny master”) that would offer access to the Fed “payment rails” while controlling for various risks to the Federal Reserve and the payment system.
“To control the size of the accounts and associated impacts on the Fed’s balance sheet, the Reserve Banks would not pay interest on balances in a payment account, and balance caps may be imposed,” he said. “These accounts would not have daylight overdraft privileges—if the balance hits zero, payments will be rejected. They would not be eligible for discount window borrowing or have access to all Federal Reserve payment services for which the Reserve Banks cannot control the risk of daylight overdrafts.”
Waller emphasized that his prototype approach was intended to “provide some clarity on how things could change.”
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