- Trade groups representing the banking sector heavily criticized the Fed for issuing a master account to Kraken.
- ABA, ICBA, and BPI called out the central bank for front-running the comment period of the “skinny” master accounts.
- They also warned about the banking system’s exposure to the same risks inherent in the crypto industry.
Kraken Financial securing a master account at the US Federal Reserve marked a significant milestone in the crypto industry. It was the first in the sector to do so, which signals similar moves from other participants in the digital asset community.
However, trade groups representing the banking industry were none too pleased with the latest developments. The American Bankers Association, the Independent Community Bankers of America (ICBA), and the Bank Policy Institute (BPI) all cried foul on the Fed’s move.
What are the Groups Complaining About?
BPI criticized the Kansas City Fed for front-running the comment period and violating the central bank’s policy of seeking public comments before making significant changes to the payments system when it issued a “skinny” master account to Kraken. The group called out the institution for its lack of transparency regarding the process, particularly on the subjects of controls and risk mitigants.
ABA also aired the same grievance about the Fed’s rush to issue a “skinny” master account to Kraken, even though the rules are still a work in progress and public consultation is ongoing. Additionally, it argued that there are many related issues the central bank must first address, including the final GENIUS Act rules and the very framework for the lite version of the master account for fintech companies.
Meanwhile, ICBA warned about the approval of Kraken and other crypto-related businesses for a master account. It believes the Fed’s accommodation of non-bank entities, especially crypto institutions, could expose the entire banking system to the same risks inherent in their respective sectors. The group reiterated its earlier statements on the matter, saying that the master account should be exclusive to the traditional banking regulatory framework to ensure the highest standards.
Kraken’s ‘Skinny’ Master Account at the Fed
The Fed notably opened the window for feedback about the “skinny” master account in December last year. The comment period runs 45 days after publication in the Federal Register.
Unlike the master accounts the central bank offers to institutions with a banking charter, the “skinny” version is limited only to payment clearing and settlement purposes. Hence, it does not pay interest, it does not have access to the Fed credit system, and it has balance caps.
Fed Governor Christopher Waller highlighted that the measure aims to strike a balance between innovation and security in the payments system. Furthermore, he emphasized that it’s the “first step to ensuring that the Fed is responsive to evolutions” in the industry.
