Crypto exchange Kraken has become the first crypto firm to secure approval for the Federal Reserve’s master account, a move that would further crypto into the mainstream financial system. The Kraken Fed master account approval reportedly serves as a pilot to test the Fed’s proposed skinny master accounts, which could benefit stablecoin issuers such as Ripple and Circle.
Kraken Fed Master Account Approval: A Watershed Moment For Crypto
According to a WSJ report, Kraken’s banking arm, Kraken Financial, has secured approval for a Fed master account, which it applied for with the Kansas City Fed in 2020. Pro-crypto Senator Cynthia Lummis described this as a “watershed milestone in the history of digital assets.”
With the Kraken Fed master account approval, the crypto exchange’s banking arm will have access to the Fed’s core payment system and will be able to move money on the same rails that banks and credit unions use. The firm also noted that the approval would enable them to handle transactions more quickly and seamlessly for big clients and professional traders, as it would have access to Fedwire.
Kraken won’t get the full range of services that the banks enjoy. The exchange won’t be able to pay interest on reserves held at the Federal Reserve and won’t have access to the Fed’s lending facilities. Regardless, it marks a major milestone for the crypto industry, especially as crypto gains mainstream adoption.
The Kraken Fed master account approval also comes ahead of the crypto exchange’s much-anticipated U.S. IPO. Kraken has already filed a confidential draft S-1 and could go public sometime this year.
Meanwhile, it is worth noting that crypto firms such as Ripple and Anchorage, along with crypto-friendly Custodia Bank, have filed for a Fed master account. Custodia filed its application around the same time Kraken did, while Ripple filed its application last year.
A Pilot Program For The Proposed Skinny Master Accounts
In an X post, crypto journalist Eleanor Terrett revealed that the Kraken Fed master account approval is designed as a “pilot” program for the proposed skinny master account. This comes as Fed Governor Chris Waller, who proposed the framework, looks to finalize the initiative by the end of this year.
As CoinGape reported, the bank and crypto industry have clashed over this proposed Fed skinny master account. Banking groups have raised regulatory concerns. The American Bankers Association said many eligible entities lack a long history of supervisory oversight. It also warned that federal safety and soundness standards remain inconsistent across applicants.
Under the proposed skinny master accounts, firms would be able to hold reserves and settle transactions using the Central Bank’s payment system. However, they cannot lend, access the Fed’s discount window, or operate as a traditional commercial bank, Terrett explained.
It is worth noting that other banking regulators, such as the OCC, are also warming up to the crypto industry. The OCC has conditionally approved national trust charters for Ripple, Crypto.com, Circle, and Paxos. The OCC recently expanded Trust Bank’s services, a move that could also provide these crypto firms with access to the U.S. financial system.
Meanwhile, Fed Governor Michelle Bowman recently stated that they are working with other banking regulators to implement the GENIUS Act. She added that they will provide clarity on the treatment of digital assets to ensure the banking system is well-positioned to support crypto activities.
