FRB Proposes Limited-Purpose Reserve Bank Accounts for Payments Firms

The Federal Reserve Board ("FRB") proposed creating a new, restricted type of account at a Federal Reserve bank that would let payments-focused institutions clear and settle transactions directly without holding a full master account.

The proposal would establish a "Payment Account" that could not earn interest, could not borrow from the discount window, and could not run a daylight overdraft, meaning the holder would have to prefund its activity. A Reserve Bank would cap each account balance at a level tied to expected payment flows, not to exceed $1 billion. Payment Accounts would have access to the Fedwire Funds Service, the FedNow Service, the National Settlement Service, and the Fedwire Securities Service, but not the FedACH network (the Fed's automated clearing house), and a holder could not act as a correspondent for other institutions. An institution could not hold both a Payment Account and a master account, and the proposal would not change which institutions are legally eligible for a Reserve Bank account.

The FRB said it acted in response to payments-focused institutions that sought direct access to Federal Reserve accounts and services instead of relying on intermediaries, including firms pursuing novel state or federal banking charters. The standardized restrictions are intended to give the accounts a lower risk profile and a faster review.

The FRB also encouraged the Reserve Banks to pause decisions on requests for accounts and services from "Tier 3" institutions - applicants that are not federally insured and not subject to federal prudential supervision - until it completes the Payment Account policy process. The FRB said it expects the pause to end on or before December 31, 2026.

The FRB highlighted two related proposals that would carry out parts of the framework. An amendment to Regulation A ("Extensions of Credit by Federal Reserve Banks") would make Payment Account holders ineligible for primary, secondary, and seasonal credit at the discount window. An amendment to Regulation D ("Reserve Requirements of Depository Institutions") would bar interest on Payment Account balances, which the FRB said would keep the accounts from being used as a store of value; reserve requirement ratios would remain zero.

Comments on all three proposals are due within 60 days after they are published in the Federal Register.