Fed Proposes Direct Payment Access for Stablecoin Issuers

The Federal Reserve’s proposal represents a dramatic reversal from its historically guarded stance toward digital asset firms. Announced at the central bank’s inaugural Payments Innovation Conference, the new payment account would grant stablecoin issuers and crypto companies direct access to Fed payment rails without the full privileges of traditional master accounts. Governor Waller described the concept as providing basic Fedwire and ACH connectivity while deliberately stripping out interest payments, overdraft facilities, and emergency lending capabilities.

The account structure includes critical limitations: balance caps to control the Fed’s balance sheet exposure, no interest payments to prevent it from becoming a deposit-taking institution, no daylight overdrafts, and exclusion from discount window borrowing. This carefully constrained approach aims to support payments innovation while preventing the Fed from assuming credit risk on nonbank entities. For firms like Custodia Bank, Kraken, Ripple, and Anchorage Digital that have been pursuing full master accounts, the new framework could significantly accelerate approval timelines.

Waller framed this development as marking a new era where ‘the DeFi industry is not viewed with suspicion or scorn’ but is welcomed ‘to the conversation on the future of payments.’ The proposal effectively revives the concept of narrow banking by separating payments from credit creation, a structure that stablecoin issuers already operate under de facto by holding backed reserves and moving money without lending activities.

Direct Fed access would fundamentally alter the operational and risk dynamics for compliant U.S. stablecoin issuers. Currently, stablecoin operators function as de facto narrow banks but lack direct Federal Reserve access, forcing them to partner with commercial banks to redeem tokens. Waller’s proposal would allow qualifying firms to hold reserves directly with the Fed, back tokens with central bank money, and eliminate the friction between banks and their crypto partners that creates bottlenecks during periods of market stress.

The structural implications are profound. If reserves sit at the Fed rather than in commercial bank deposits, stablecoins become direct claims on central bank liabilities, effectively eliminating credit risk. Caitlin Long, CEO of Custodia Bank, characterized this shift as correcting ‘the terrible mistake the Fed made in blocking payments-only banks from Fed master accounts.’ This transformation would position compliant U.S. stablecoins closer to narrow money in the financial system hierarchy while substantially reducing bank-run risk.

Operationally, redemption flows would become dramatically more efficient. Issuers could post and receive payments directly through Fed rails rather than routing them through partner banks, compressing settlement times from hours to near real-time. This mechanical improvement—with fewer steps, lower latency, and reduced dependency on traditional banking hours—becomes particularly material during heavy redemption periods when queues typically lengthen and partner banks might freeze transfers.

The proposal has generated both enthusiastic support and significant concern across the financial ecosystem. Ripple CEO Brad Garlinghouse argued just days before Waller’s announcement that crypto firms meeting banking-grade AML and KYC standards should receive banking-grade infrastructure access. For Ripple, which filed its own master account application in 2025, direct Fed connectivity would allow settlement of dollar legs in cross-border transactions without relying on correspondent banks.

However, BitMEX co-founder Arthur Hayes offered a starkly different perspective, warning that ‘if Tether didn’t need to rely on a TradFi bank for its existence, the Fed is moving to destroy commercial banking in the US.’ His concern centers on disintermediation—if large issuers and payment processors access Fed rails directly, they no longer need commercial banks for basic services, potentially eroding deposit bases while concentrating liquidity at the central bank.

The restrictions Waller outlined—no interest, balance caps, and no overdrafts—appear designed to thread this needle: supporting payments innovation without making the Fed the primary deposit taker or assuming credit risk on nonbanks. Balance caps will be particularly crucial for large issuers like Tether, which holds reserves in the tens of billions. Strict caps might accommodate operational liquidity but not entire reserve bases, forcing issuers to split reserves between Fed accounts and commercial banks.

The proposal represents a natural evolution following the GENIUS Act, signed into law in July 2025, which established federal stablecoin requirements but didn’t grant direct Fed access. Waller’s initiative fills this critical gap and formalizes crypto’s entry into Fed-supervised infrastructure. The central bank has directed staff to gather stakeholder feedback, though no specific timeline has been established for implementation.

If major issuers gain Fed accounts, the impact on liquidity and settlement quality becomes systemic. Fed-backed reserves cannot be frozen by commercial banks or subjected to intermediate institution credit risk, substantially compressing settlement risk during market stress. Regulatory arbitrage would narrow as offshore issuers or those unwilling to meet GENIUS Act standards lose competitive ground to U.S.-regulated issuers offering Fed-backed tokens with structural safety advantages.

This policy shift integrates crypto infrastructure into the core payments system under Federal Reserve supervision, with direct settlement reducing systemic fragility. It acknowledges that digital asset infrastructure has moved from the financial fringes to the center of how dollars move globally. The payment-only door under balance caps and tight restrictions creates a level playing field while recognizing that the future of payments increasingly involves blockchain-based systems operating alongside traditional banking infrastructure.