Why The U.S. Fed Could Give Crypto Banks Access To Legacy Banking System
According to a press release, the U.S. Federal Reserve (Fed) might provide crypto banks and other entities with access to Federal Reserve accounts and payment services. Following two proposals from the Federal Reserve Board in May 2021 and March 2022, the institution has arrived at final guidelines for these purposes.
This set of rules is aimed at providing “Reserve Banks” with access to the aforementioned tools by establishing a “transparent, risk-based, and consistent set of factors” for reviewing these entities. Vice Fed Chair Lael Brainard said the following on the guidelines:
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.
As mentioned, the guidelines will facilitate access to the legacy financial system, via Federal Reserve accounts, and payment methods, such as cash, checks, wire transfer, and others, to crypto banks and other “novel” entities.
The financial institution acknowledged that companies offering “new types of financial products”, such as crypto, have expanded in recent years. The companies offering these products have requested access to Federal Reserve accounts, but there was no efficient way of reviewing their requests.
According to the release, financial institutions will have a framework to provide crypto banks and novel entities with “clarity” and evaluate their request depending on “different types” of risk. Institutions with federal deposit insurance will have easier access to these tools.
Institutions that “engage in novel activities” under a “still developing appropriate supervisory and regulatory framework” will have to go through a more rigorous process. The Fed failed to provide further clarity on the institutions that will be classified as the former or the latter, but crypto banks will surely have to meet the more rigorous standard.
Crypto Entities Scored A Win With The Fed?
Fed Governor Michelle Bowman claimed that these guidelines will provide entities requesting access to the financial institution’s services with clarity. Thus, crypto banks and novel entities will be able to better understand the process to gain access to the U.S. central bank system at an institutional level.
However, Bowman emphasized that the guidelines would need to undergo a reviewing process before their implementation as rules. The Fed Governor concluded:
The publication of the Non-Traditional Account Access guidelines is an important step to provide transparency and consistency across the Federal Reserve System with respect to such requests.