Federal Reserve Governor Christopher Waller introduced a new payment account on October 21 aimed at granting stablecoin issuers and cryptocurrency firms direct access to the Federal Reserve’s payment systems, albeit without full master account privileges. This announcement, made during the inaugural Payments Innovation Conference, signifies a notable shift from the central bank’s previously cautious approach towards digital asset companies. Waller characterized this new account as a simplified master account that provides essential Fedwire and ACH connectivity without offering features such as interest payments, overdraft options, or emergency lending. This initiative is expected to revolutionize how stablecoin issuers manage dollar transactions.
### The Payment Account and Its Implications
The proposed payment account reintroduces the concept of narrow banking by distinguishing payment processing from credit provision. Currently, stablecoin issuers function as informal narrow banks by holding backed reserves and facilitating money transfers without extending credit. However, they currently lack direct access to the Federal Reserve and must collaborate with commercial banks to redeem their tokens. Waller’s proposal would allow qualifying firms to maintain reserves directly with the Federal Reserve, thereby backing their tokens with central bank funds and reducing the friction that often occurs when banks and their partners interact, particularly during periods of financial stress. This direct access could significantly lower the risk of bank runs, as tokens would essentially be claims on central bank liabilities, thereby minimizing credit risk.
### Enhancements and Trade-offs in Operations
Issuers would experience improved efficiency in redemption flows if they could manage payments directly, rather than relying on partner banks. This operational enhancement is largely mechanical, requiring fewer steps and reducing delays, which is particularly beneficial during high-volume periods when redemption queues may become lengthy. By utilizing Fed rails for both posting and receiving payments, issuers would be able to streamline settlement times from hours to almost real-time, while also mitigating the risk that a partner bank might freeze transfers. However, balance caps imposed by the Fed will be crucial for larger issuers like Tether, which holds reserves valued in the tens of billions. These limits may suffice for operational liquidity but could necessitate a division of reserves if they do not accommodate the entire asset base. The Fed’s objective to control its balance sheet impact and limit credit exposure will influence these caps, compelling issuers to consider the trade-off between direct access to the Fed for a portion of their reserves versus keeping all assets in commercial banks.
### Perspectives on Regulatory Changes
Prior to Waller’s announcement, Ripple CEO Brad Garlinghouse expressed that crypto firms adhering to banking-grade anti-money laundering (AML) and know-your-customer (KYC) regulations should gain commensurate access to financial infrastructure. Ripple had submitted a master account application in 2025, and direct access to the Federal Reserve would enable the company to facilitate dollar transactions for cross-border payments without relying on correspondent banks. This rationale extends to cryptocurrency exchanges and custodians that depend on banks for fiat transactions; direct connectivity to the Fed would eliminate these dependencies and alleviate potential bottlenecks. BitMEX co-founder Arthur Hayes, however, voiced concerns about potential disintermediation, suggesting that if major issuers and payment processors gained direct access to Fed payment systems, the necessity for commercial banks could diminish. This shift could weaken the deposit bases of these banks while concentrating liquidity within the Federal Reserve.
### Anticipated Changes and Regulatory Impact
Waller has tasked Fed staff with collecting feedback from stakeholders, though he did not provide a specific timeline for implementation. The GENIUS Act, enacted in July 2025, established federal regulations for stablecoins but did not allow for direct access to the Fed. Waller’s proposal aims to bridge this gap, potentially expediting decisions for firms with pending applications. Initially, banks with payment subsidiaries may be prioritized in the application process, with crypto-focused fintech firms following once the regulatory framework is firmly established. This new payment account marks a significant step in integrating cryptocurrency into the Fed’s supervised infrastructure. Should major issuers secure Fed accounts, the implications for liquidity and settlement quality could be profound. Reserves backed by the Fed would be insulated from the risk of being frozen by commercial banks or subjected to the credit risks associated with intermediary institutions, thus reducing settlement risks during times of stress.
The narrowing of regulatory arbitrage will likely favor U.S.-regulated issuers, as those outside the U.S. or unwilling to comply with the GENIUS Act may struggle against firms offering Fed-backed tokens with inherent safety benefits. Waller’s proposal effectively opens a payment-only channel into the Federal Reserve under stringent limits, revives the narrow banking concept, and positions compliant stablecoins as instruments backed by the central bank, establishing a more level playing field while reducing reliance on certain commercial bank services. This policy shift signifies the integration of cryptocurrency into the payment system under regulatory oversight, enhancing direct settlement processes and acknowledging that digital asset infrastructure has transitioned from the periphery to a central role in the movement of dollars.
