The candidate who could replace Powell at the Fed wants to integrate crypto with a skinny master account.

The U.S. Federal Reserve is exploring so-called "skinny master accounts" to integrate crypto companies into its payment system.

The proposal in question, presented by the governor Christopher Waller, introduces the concept of "thin master accounts," a model that seeks to balance innovation with the strict financial stability safeguarded by the central bank. According to experts, this move could reconfigure the relationship between Washington and the crypto market, which for years has sought a formal place within the traditional banking system.

Eleanor Terrett, host of Crypto in America, highlighted that the initiative represents a notable change of tone for a regulator that, under Chairman Jerome Powell, has maintained a cautious, if not outright reluctance, stance toward the integration of cryptocurrencies and digital assets. Waller's idea, according to Terrett, offers a middle ground to a debate that has even reached the courts, with companies like Custodia Bank fighting legally for access that is now being offered on a limited basis.

Governor Waller, considered one of the possible candidates to succeed Powellproposes a vision that could transform the way certain players within the crypto ecosystem operate. Its idea is to provide them with a structure more similar to that of traditional banks, allowing them to process transactions more quickly and, most importantly, reduce their dependence on banking institutions as intermediaries. This last point is crucial, as banks have been a bottleneck and a constant source of risk for the crypto industry. 

In the recent interview with Terrett, Waller revealed that the guidelines for implementing this new account model could be ready within a year, marking a significant step toward the regulatory and operational integration of cryptocurrencies into the mainstream U.S. financial system.

The Fed's proposal to connect cryptocurrencies to the traditional financial system

The core of Waller's proposal lies in the word "skinny." It's not about giving cryptocurrency companies the full keys to the central bank, but rather offering tightly controlled transactional access. The main objective is to limit any potential risk to the Federal Reserve's balance sheet. As Waller explained, these "skinny" accounts would have very specific characteristics designed to create a financial firewall.

In her speech At the Federal Reserve Board's Payments Innovation Conference in Washington, Waller noted that, for example, the balances in these accounts would not generate interest, a measure intended to prevent companies from using the Fed as a place to store large sums of idle cash, discouraging idle reserves. He also said that maximum limits for balances. 

But without a doubt, the most important thing is that these accounts would not offer two fundamental services in traditional banking: would not have overdraft facilities during the day nor access to emergency loans in the discount window.

In practice, this means that if a company's balance reaches zero, its payments will simply be rejected; the Fed won't cover the overdraft. Nor will they be able to turn to the central bank for emergency liquidity loans, a vital resource for commercial banks in times of stress. It is, in essence, a system designed solely to process payments, without the backstop structure that characterizes a full-fledged bank. 

With this proposal, the Federal Reserve seeks to update its payment systems without assuming market risks. 

A step towards official crypto integration

Waller's proposal seems to be aimed specifically at one segment of the market: stablecoin issuersThese companies, which issue digital tokens backed by assets like the dollar, are natural candidates for this type of access. 

Linda Jeng, a Georgetown University professor and executive director of Digital Self Labs, compared the idea to the concept of “narrow banking” in conversations with CoinDesk.

Jeng argues that payment stablecoin issuers already operate, de facto, as banks under this concept, because they hold full reserves to back their tokens and facilitate payments, but do not lend those funds. Waller's proposal, in this view, would simply provide them with the official Fed rails to do what they already do, formally integrating them into the U.S. monetary system. This move would have a twofold benefit: in addition to legitimize the issuers, would give the Fed itself more effective tools to monitor and manage any systemic risk that this growing market could generate.

The industry has spent years seeking this integration, arguing that its business model, focused on custody rather than lending, is inherently safer and worthy of a master account. Waller's "skinny" approach is a direct response to that pressure, though perhaps not the complete victory some had hoped for. However, for many, this proposed conditional integration is a recognition that the cryptocurrency sector can no longer be ignored.

A strategic move for the dollar and the future of digital finance

The debate over master accounts isn't just happening in the domestic regulatory arena; it has a deep geopolitical undertone. David Malpass, former president of the World Bank, connected Waller's proposal to a larger strategic imperative. During his participation in the ACI Worldwide payments summit, Malpass suggested that making it easier for regulated stablecoin issuers to operate would help "defend the purchasing power of the dollar".

Their comment points to the global competition for stablecoin market share. In a world where financial technology is advancing rapidly, ensuring that the vast majority of stablecoins remain pegged to the dollar and operate under the supervision of the U.S. payments infrastructure is a way to project the influence of fiat currency in the digital age. In other words, experts point out that allowing crypto companies controlled access to the Fed may be a strategy to ensuring that payments innovation continues to occur within the dollar ecosystem, and not outside of it.

However, Waller has been clear that, for now, this is just a prototype idea. The next step will be an engagement with all interested parties to hear perspectives on the benefits and drawbacks of this proposal. Still, Waller noted that more details will be revealed soon, as the digital financial sector, from blockchain startups to large intermediary banks, closely monitors every move regarding this potential approach.