Banks Caution Against Relaxing Standards for Fed Account Access to Preserve Financial Stability

Washington, D.C. - The Bank Policy Institute, Financial Services Forum and The Clearing House Association responded today to the Federal Reserve's request for input on a special-purpose payment account, sometimes referred to as a "skinny master account." This proposal would relax Federal Reserve master account access standards by introducing a new type of account aimed at payments companies. The associations warned that granting direct access to the Fed's payment infrastructure to lesser-regulated institutions without sufficient guardrails could increase payment system risks and undermine financial stability.

"​The United States' payment system is based on the core principles of trust, security and resiliency," the associations wrote. "We support innovation in the payments ecosystem that consistently upholds these principles and appropriately limits systemic and operational risks."

A "master account" serves as a bank account for banks. It allows financial institutions to clear and settle transactions on behalf of their customers. The Federal Reserve Board has adopted rigorous account access guidelines for master accounts, which historically have been granted primarily to insured depository institutions and other depository institutions engaged in low-risk activities. This creates a safer and more efficient payment system because all participants within this system are vetted and generally subject to robust, ongoing supervision.

The Fed's proposal would open the door to the payment system for institutions that do not have federal deposit insurance and are not subject to comprehensive prudential regulation and supervision. The proposal identifies a few important safeguards to address the risks presented by these applicants, such as prohibiting overdrafts, discount window access and interest on account balances. The associations support these protections but encourage the Fed to go further.

In addition to the protections currently being considered, the associations recommend the Federal Reserve:

• Require applicants to demonstrate at least 12 months of safe and sound operations before applying;
• Set strict balance and transaction limits and limit access to payment rails with final settlement and real-time monitoring;
• Subject all account holders to strict BSA/AML requirements to help prevent illicit finance;
• Prohibit pass-through use, sponsorship and other arrangements that primarily benefit affiliates or third parties that would not otherwise be eligible for an account of their own;
• Conduct ongoing monitoring of these accounts for compliance with all laws, regulations and commitments; and
• Publish applications for these accounts for public comment.

The associations also emphasized that a payment account should not be treated as a stepping-stone to a master account. Applicants seeking a master account should apply for a master account, and those applications should be reviewed under the Fed's existing access guidelines.

To access a copy of the letter, please click here.

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About Bank Policy Institute.

The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.

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