Banking and Finance Law Daily Wrap Up, FEDERAL RESERVE SYSTEM—CRS examines Fed’s “skinny” master account proposal, (Aug 6, 2026)

By Shashi Kant, B.A. LL.B., LL.M.

A new CRS Insight finds just three of dozens of Tier 3 applicants have secured a master account since 2022.

The Congressional Research Service, in an Insight published Aug. 4, 2026, examined Fed’s proposal to create a limited payment master account (a concept Fed Governor Christopher Waller has called a “skinny” master account) against the backdrop of years of slow or unsuccessful master account applications from fintech and crypto firms.

Background. Banks, which sit at the center of the payment system, can directly settle payments through master accounts held at Fed, the report explains. In recent years, crypto and fintech firms have applied for master accounts, sometimes facing rejection or long waits for approval. In response, Fed proposed in May 2026 to create a limited payment master account with an expedited approval process (see Banking and Finance Law Daily, May 21, 2026), building on the concept Waller first floated at Fed’s inaugural Payments Innovation Conference (see Banking and Finance Law Daily, Oct. 21, 2025).

Legal eligibility for a master account is limited to firms with bank charters and a few other select institutions, the report states. Nonbank payment firms could gain lower costs or faster settlement by holding master accounts directly instead of going through partner banks, the report notes, a dynamic that has driven more nontraditional applicants and greater scrutiny of who should get access. Although Fed gatekeeps its wholesale payment and settlement services, the report notes that operating those services does not give Fed regulatory jurisdiction over firms that gain access, leaving Fed reluctant to base access on eligibility alone. Some crypto firms have instead pursued trust or special purpose charters from the OCC or state regulators, such as a Wyoming special purpose depository institution charter, the report states, noting the OCC conditionally approved non-depository trust bank charters for five crypto firms, including Paxos, Circle, and Ripple, in December 2025.

2022 guidance. Fed issued final guidance in August 2022 explaining how it would evaluate master account applications (Banking and Finance Law Daily, Aug. 16, 2022), under which, per the report, legally eligible applicants can expect approval absent undue risk to Fed, the payment system, financial stability, or monetary policy, or facilitation of illicit activity. The report describes a resulting three-tier scrutiny framework, with federally insured institutions (Tier 1) receiving the least scrutiny; prudentially supervised or Fed-holding-company-affiliated institutions (Tier 2) receiving more; and uninsured, unsupervised institutions holding state or federal charters (Tier 3) receiving the most.

Application data. Under P.L. 117-263, a 117th Congress law, Fed must publicly disclose institutions that have requested, been rejected for, or been granted master accounts, and maintains a public database to comply, the report states. From December 2022 through May 2026, the report finds, only three Tier 3 applicants received a master account and no Tier 2 applicants were approved, with about half of Tier 3 applicants withdrawing or being rejected and several pending for years. Custodia, a crypto-focused Wyoming SPDI, sued Fed over the rejection of its membership and master account applications, lost, and was denied a rehearing in March 2026, the report notes. As of May 31, 2026, 357 institutions without federal deposit insurance held master accounts, 4 percent of all holders, mostly foreign banks and state credit unions, according to the report.

The skinny account proposal. Under Fed’s May 2026 proposal, limited payment accounts would feature streamlined approval, typically within 90 days, without modifying or expanding legal eligibility for master accounts, the report states. A holder would gain direct access to Fed-run payment systems but, unlike traditional master account holders, would not earn interest or access Fed’s cash, check, or ACH services, and would face a balance limit with no discount window access or intraday overdraft credit, according to the report. The report characterizes the proposal as reflecting Fed’s view that the benefits of granting access to firms not engaged in traditional banking but holding bank charters outweigh the risks, a balance it says the banking industry and crypto critics alike argue tips too far toward access. The rule would not add AML requirements beyond existing law, though Fed would retain discretion to periodically require confirmation of compliance, the report states. Fed Governor Michael Barr, dissenting, stated the proposal did not sufficiently safeguard against money laundering and terrorist financing facilitated by account holders, according to the report.

Kraken pilot. Before issuing the proposal, Fed granted crypto firm Kraken, a Wyoming SPDI, a 12-month pilot limited master account in March 2026, which Fed Vice Chair Michelle Bowman characterized as an opportunity to test and learn, the report states. The Bank Policy Institute, however, argued the pilot “front-runs the Board’s public comment process” and departed from the Board’s own practice of seeking comment before significant payment-system changes, per the report.

LegislativeActivity: BankingOperations ChecksElectronicTransfers FederalReserveSystem FinancialIntermediaries FinancialStability FinTech