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Fed Opens Master Account Access to Novel Chartered Banks

Fed master account

The Federal Reserve Board (FRB) is opening up access to Fed “master accounts” to new charter types.

In a press release, the Board of Governors of the Federal Reserve System announced that it had finalised new guidelines for Reserve Banks to use in reviewing requests to access Federal Reserve accounts and payment services. 

Vice Chair Lael Brainard said, “the new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive, and innovative payment system.” 

The FRB has noted that institutions offering new types of financial products or with novel charters have grown indecent years and many have requested access to master accounts and payment services offered by Federal Reserve Banks. The guidelines will set out a “transparent, risk-based and consistent set of factors” for Reserve Banks to evaluate those requests.

All seven members of the Federal Reserve Board voted in favor of the motion. The new tiered review framework prescribes a differential level of due diligence and scrutiny that Reserve Banks will apply to institutions with varying degrees of risk.The new guidelines maintain that institutions without FDIC insurance will have to undergo a more extensive review in consideration of a Fed master account.

Institutions have direct access to the payment systems of the Federal Reserve through the use of master accounts. While institutions which don’t have master accounts have to rely on partner banks with master accounts to provide services.

The issue of master accounts for Fintech firms has been remarkably contentious. Crypto bank Custodia, formerly known as Avanti, is suing the FRB of Governors and the FRB of Kansas City for delaying a decision on its application for a central bank master account for more than a year and a half, arguing that it had violated the one-year statutory deadline.

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