Fed Proposes ‘Skinny’ Master Accounts for Crypto Banks

The Federal Reserve’s proposal, announced by Governor Christopher Waller at a Washington conference, marks a potential turning point for crypto-focused financial institutions that have struggled for years to secure full banking privileges. Master accounts, currently held by all federally chartered banks, provide direct access to the Fed’s payment systems and are essential for institutions seeking to function as national banks. Waller’s ‘skinny’ master account concept would create a streamlined timeline for institutions focused on ‘payments innovation’—a category that explicitly includes cryptocurrency and other emerging financial technologies.

This new approach would allow crypto banks to bypass their current dependence on third-party, master account-holding banks, giving them direct access to Federal Reserve payment rails. The significance of this development cannot be overstated—it represents the first real opportunity for crypto institutions to gain the coveted ability to function as federal banks, a status that has remained elusive despite years of effort by companies like Custodia Bank. The timing coincides with increased interest from major players including Coinbase, Stripe, Paxos, Circle, and even Sony Bank, all of which have applied for bank charters following recent regulatory shifts.

The ‘skinny’ designation comes with important limitations designed to manage what Waller described as ‘various risks to the Federal Reserve and the payment system.’ These restricted accounts would not provide interest payments on account balances or overdraft privileges—two key benefits of traditional master accounts. Additionally, the Federal Reserve is considering implementing balance caps as a further risk control measure, ensuring that exposure to any single institution remains within manageable limits.

Despite these limitations, the access to Fed payment systems represents a crucial infrastructure upgrade for the crypto industry. For stablecoin issuers like Circle (USDC) and Paxos, direct Fed access could enhance settlement efficiency and reduce counterparty risk. For crypto exchanges like Coinbase, it could streamline customer fund processing and improve operational resilience. The exclusion of interest payments and overdraft protection reflects the Fed’s cautious approach to integrating innovative but potentially volatile financial sectors into the core banking system.

Not all industry participants are celebrating the proposal without reservation. Caitlin Long, founder of Wyoming-chartered Custodia Bank, which has sought a full master account for years, immediately raised concerns about eligibility criteria. Waller specified that the new program would apply only to ‘legally eligible entities,’ language that Long warned could exclude important segments of the crypto ecosystem. Trust companies that custody crypto assets but don’t accept deposits, for example, might find themselves ineligible under the proposed framework.

Long expressed confidence that her institution, Custodia Bank, has already been deemed legally eligible by the Fed, but the broader implications for other crypto entities remain uncertain. The distinction between different types of crypto institutions—banks, trust companies, exchanges, and payment processors—could create a tiered system where some gain access while others remain dependent on intermediaries. This comes as the Federal Reserve conducts outreach to stakeholders, with updates on implementation expected soon.

The proposal arrives during a period of significant regulatory evolution for cryptocurrency in the United States. Following the Trump administration’s permissive stance on crypto policy, numerous institutions have pursued bank charters, recognizing the strategic importance of direct Fed access. The Federal Reserve’s willingness to explore specialized account structures suggests a pragmatic approach to financial innovation—one that balances opportunity with risk management in an increasingly digital financial landscape.