Fed proposes payment account for clearing, settlement
The Federal Reserve Board has requested public comment on a proposal to establish a new 'payment account' for legally eligible financial institutions. This specialized account would be used solely for clearing and settling their payments, aiming to accommodate evolving payment innovations.
Tailored access, strict controls
The proposal outlines revisions to the Federal Reserve Policy on Payment System Risk and the Guidelines for Evaluating Account and Services Requests.
It also suggests changes to Regulation A, explicitly excluding Payment Account holders from discount window credit, and Regulation D, to prevent interest payments on these balances.
Reserve Banks are encouraged to pause decisions on account access requests from Tier 3 institutions until the Board finalizes its policy.
This framework aims to provide tailored access to Federal Reserve services for institutions focused on payments innovation, while mitigating material risks identified in existing guidelines.
The Payment Account is designed with a lower residual risk profile compared to a Master Account, potentially allowing for a more streamlined review process for applicants.
RFI feedback shapes proposal
The proposal builds on a December 2025 Request for Information (RFI) on a prototype Payment Account, which garnered 72 comment letters.
Non-traditional institutions largely supported the concept, advocating for wider service access, while traditional banks urged more restrictions.
The current proposal largely retains the prototype's core features: limiting the account to clearing and settling payment activity, denying access to intraday credit, and maintaining a zero-interest policy on balances.
A key change based on feedback is the revised closing balance limit, now set by the Reserve Bank based on expected activity, not exceeding $1 billion.
This aims to balance utility for payment-oriented institutions with concerns about the account's impact on the Federal Reserve's balance sheet.
Cautious integration, limited appeal
This proposal marks a measured step by the Federal Reserve to accommodate payment innovation while strictly managing associated risks.
The tailored account offers a dedicated, albeit constrained, pathway for non-traditional financial institutions to access central bank services.
However, the lack of credit access and interest payments may limit its broader appeal, reflecting the Fed's cautious stance on integrating these new players.