In brief
- Kraken became the first crypto bank to receive a Federal Reserve master account on Wednesday.
- Major banking groups criticized the move as risky and potentially inconsistent with the Fed’s own policies.
- The dispute adds to broader tensions between banks and the crypto industry over stalled crypto legislation.
Top banking trade groups slammed the Fed’s decision to hand a coveted master account to crypto firm Kraken Wednesday, arguing the move was not only risky, but violated the central bank’s own policies.
On Wednesday, Kraken announced it successfully secured a master account from the Federal Reserve Bank of Kansas City. Master accounts allow a bank to access the Fed’s payment services, and are considered practically essential to operate a bank nationally. Kraken is the first crypto bank to ever receive master account approval—though several have been trying for years.
Kraken’s master account is reportedly limited in some respects; it does not, for instance, allow for the payment of interest on reserves. That’s consistent with the novel concept of a “skinny” master account floated last year by the Fed, as a means to fast-track master account approvals for “innovation-focused” banks.
Traditional banking industry groups immediately denounced the approval, claiming it could pose substantial dangers to the U.S. economy.
“There are significant risks to expanding direct Fed account access to institutions that operate outside the traditional banking regulatory framework,” Rebeca Romero, CEO of the Independent Community Bankers of America, said in a statement. “The Fed should continue limiting master account access to institutions that meet the financial services sector’s highest standards.”
The powerful Bank Policy Institute (BPI), which represents Wall Street giants including JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs, went further—arguing the Fed had violated its own policies by offering Kraken a skinny master account so soon. The central bank only formally announced its new potential offering in late December, and opened it up to a period of public comment.
While that public comment period ended last month, BPI said Wednesday that the Kraken approval still “front-runs” the Fed’s process for considering the creation of a skinny master account program. The program appears to have not yet been finalized or approved by the Fed’s board.
“This action ignores public comment that the Federal Reserve sought on this framework, and it was issued with no transparency into the process for approval or the risk mitigants that have been imposed to address the very significant risks it raises,” Pidano Paridon, BPI’s co-head of regulatory affairs, said in a statement.
The flare-up comes as the banking lobby and crypto industry remain locked in a feud over stablecoin rewards, one that has brought crypto’s long-sought market structure bill to a halt in Congress.
On Tuesday evening, President Donald Trump personally waded into the disagreement, siding with crypto leaders and claiming that the banking industry’s concerns about stablecoin rewards were holding the crypto bill “hostage.”
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