Two of banking’s most powerful trade groups asked the Federal Reserve this week to put something in writing: exactly which firms legally qualify for its new stripped-down payment accounts. The Bank Policy Institute and a coalition of joint trade groups filed comments on July 27 pressing the Fed to publish its interpretation of legal eligibility for a Reserve Bank account, and to disclose the specific legal authority behind every account it approves. Days earlier and separately, the American Bankers Association and Consumer Bankers Association sent their own letter demanding tighter operational guardrails on the same accounts.
Both letters want the same broad outcome: fewer risky nonbank institutions getting a direct line into the Fed’s payment system. But the transparency ask carries a complication its authors may not want. If the Fed spells out, in public, exactly who counts as legally eligible, it could just as easily clear a path for the crypto and fintech firms banks are trying to keep out.
A Narrow Account Built Into the Fed’s Front Door
The Federal Reserve’s Payment Account proposal, unveiled in May, creates a scaled-down version of the master accounts that let banks move money directly through Fed systems like Fedwire and FedNow instead of routing through a correspondent bank. A Payment Account gets a firm into those rails, but with a fraction of the privileges.
- No overdrafts or daylight credit – the account cannot go negative during the business day.
- No interest on balances – unlike reserve balances at full master account holders, which have earned interest since 2008.
- No discount window access – holders cannot borrow from the Fed’s emergency lending facility.
- Prefunding required – money has to be in the account before it moves, not after.
- Capped overnight balances – funds cannot sit in the account indefinitely.
- Illicit-finance monitoring – added risk controls specific to nontraditional applicants.
Crucially, the proposal does not touch who is allowed to apply. Legal eligibility for a Payment Account still matches eligibility for a full master account under the Federal Reserve Act, which restricts access to depository institutions. What changes is what a firm gets once it is inside the door, not whether it can knock.
Why Tier 3 Became Fed Shorthand for Unobtanium
The Fed reviews applicants across three risk tiers. Tier 1 covers federally insured banks and credit unions, which move through the fastest, least invasive review. Tier 2 covers institutions that lack federal insurance but still answer to a federal prudential regulator. Tier 3 catches everyone else, and it is the tier that matters most here.
| Tier | Supervisory Status | Review Intensity | Typical Applicant |
|---|---|---|---|
| Tier 1 | Federally insured depository institution | Fastest, most streamlined | Community and national banks |
| Tier 2 | Not federally insured, but supervised by a federal banking agency | Intermediate review | Certain federally supervised trust institutions |
| Tier 3 | No federal prudential oversight at the institution or holding-company level | Strictest review; new applications paused through December 2026 | Wyoming special purpose depository institutions, unsupervised OCC trust charter holders |
Tier 3 institutions are not federally insured, and either the bank itself has no federal supervisor or its parent company sits outside Fed oversight. Federal Reserve Vice Chair for Supervision Michelle Bowman has described a master account approval for this group as unobtanium, reflecting how rarely Tier 3 applicants have actually gotten one despite technically qualifying. The Fed has since told regional Reserve Banks to pause decisions on new Tier 3 applications through December 2026 while the final framework takes shape.
Three Trade Groups, Three Different Asks
The banking industry is not pushing back with one voice. Each association filed its own emphasis, even though all three want the scope of Payment Accounts narrowed.
- Bank Policy Institute and joint trades want the Fed to publish its interpretation of legal eligibility for account access, arguing the Fed should also disclose the legal authority behind every account it grants.
- American Bankers Association and Consumer Bankers Association filed a joint letter arguing that prefunding and no-overdraft guardrails are non-negotiable pieces of the final rule.
- Independent Community Bankers of America, in the latest of three separate letters since February, wants any Payment Account program capped as temporary, barred from the discount window, and wants the Kansas City Fed to review Kraken’s existing account before renewing it.
That split reflects different risk appetites inside banking itself. Large banks and their trade groups want rules and disclosure they can hold the Fed to later. Community bankers want the door closed faster, with less patience for a multi-year rulemaking process.
The Transparency Ask That Could Cut Both Ways
Here is the complication. Bank Policy Institute’s push for a published eligibility interpretation is framed as a check on the Fed’s discretion. But eligibility under the Federal Reserve Act already covers any depository institution, and the unresolved question is whether newly chartered OCC national trust banks count as one. A written, public standard would answer that question either way, for everyone, at once.
If the Fed’s published interpretation confirms that OCC-chartered trust institutions meet the statutory definition, banks will have handed the very firms they are trying to slow a clear, citable standard to plan around instead of a discretionary maze to get lost in. A published rule cuts both directions once it exists. Banks asked for it to constrain the Fed. It could just as easily arm applicants who have spent months in regulatory limbo.
The Kansas City Fed’s 2025 decision to grant a limited-purpose account to Kraken’s parent company, Payward, shows how ad hoc the current process already is.
This is a way we can test how this is going to work.
Bowman used those words to describe the one-year, conditions-attached account the Kansas City Fed granted Payward, a Wyoming-chartered special purpose depository institution. It was built as a pilot, not a precedent, which is exactly the kind of case-by-case discretion the joint trades letter says should end.
Five Trust Charters Are Already Waiting on an Answer
The eligibility fight is not abstract for the firms lined up behind it. The Office of the Comptroller of the Currency granted conditional national trust bank charters in December 2025 to Ripple, Circle, Paxos, BitGo and Fidelity Digital Assets, part of a wider rush that saw eleven companies file trust charter applications within an 83-day span. Anchorage Digital remains the only crypto-native firm with a full, unconditional national charter.
Holding an OCC trust charter does not automatically unlock a Fed account. It is a separate legal determination, and under the current tier structure, a nationally chartered trust bank still lands in Tier 3 unless its holding company also answers to the Federal Reserve. Most of these newly chartered firms have no such parent. That is the standoff at the center of the broader clash between lenders and digital asset firms over direct access to Fed payment rails, now playing out account by account, charter by charter.
What Happens Before Any Rule Is Final
Nothing here resolves quickly. Regional Reserve Banks are working under instructions to hold off on new Tier 3 approvals through December 2026, which pushes any broad resolution for waiting trust charter holders into next year at the earliest. The Fed has not set a public deadline for finalizing the Payment Account framework, and the comment file the trade groups just added to remains open to further filings.
For now, the ledger has three association letters staking out three different lines, one pilot account already running in Kansas City, and five conditionally chartered trust banks waiting to find out which side of Tier 3 they actually land on.
Frequently Asked Questions
What Is the Difference Between a Fed Master Account and a Payment Account?
A master account carries full privileges, including the ability to hold reserve balances that earn interest. A Payment Account strips that back: no interest, no overdrafts, no daylight credit, and a hard cap on how long money can sit in the account overnight, even though both types of accounts plug into the same Fedwire and FedNow rails.
Does an OCC Trust Charter Guarantee Access to a Fed Payment Account?
No. An OCC national trust charter and a Federal Reserve account are separate legal processes. A firm can hold a conditional or full OCC charter and still be classified as Tier 3 for Fed account purposes if its holding company has no federal prudential regulator, which is the situation most newly chartered crypto trust banks are in.
Why Does Kraken’s Parent Company Already Have Fed Account Access?
Payward, Kraken’s parent, holds a limited-purpose account the Kansas City Fed granted as a one-year pilot with specific conditions attached. Bowman has described it as a test case rather than a template, meaning it does not set a fixed precedent for other Wyoming-chartered or crypto-native applicants.
When Will the Federal Reserve Finalize the Payment Account Framework?
No public deadline has been set. The instruction to regional Reserve Banks to pause new Tier 3 decisions through December 2026 suggests the framework will not be finalized and broadly applied before then.
Can Payment Account Holders Earn Interest on Their Balances?
No. Interest on balances is explicitly excluded under the proposal, one of the core safeguards banking associations have asked the Fed to keep in the final rule, unlike full master accounts, which have been eligible to earn interest on reserves since 2008.
