US bankers are raising alarms after the Federal Reserve granted Kraken Financial a master account, a decision that allows the crypto exchange’s banking arm to connect directly to the central bank’s core payment infrastructure.

The approval marks a significant step for the digital asset sector, but it has also triggered swift criticism from traditional banking advocates who argue the move could allow crypto-focused institutions to access the Fed’s settlement systems without the same safeguards applied to conventional banks.

Within hours of the announcement, several major industry groups issued statements questioning both the timing and the approval process.

The Bank Policy Institute, which represents many of the largest US banks, said it was “deeply concerned” that the Federal Reserve Bank of Kansas City approved the account before the Federal Reserve Board finalised its framework governing so-called “limited purpose” or “skinny” master accounts.

“We are deeply concerned that the Federal Reserve Bank of Kansas City has approved an account request for a ‘limited purpose’ master account, which appears to be a ‘skinny’ account, before the Federal Reserve Board has finalized its policy framework for those accounts,” said Paige Pidano Paridon, the organisation’s co-head of regulatory affairs.

Paridon also pointed to what the group described as a lack of transparency around the decision.

“It was issued with no transparency into the process for approval or the risk mitigants that have been imposed to address the very significant risks it raises,” she said.

Meanwhile, the Independent Community Bankers of America said the decision could expose the payments system to additional risks if nonbank institutions are granted the same level of access as insured depository institutions.

“ICBA and the nation’s community banks are very concerned with the Federal Reserve Bank of Kansas City’s approval of a master account for Kraken Financial,” said ICBA President and Chief Executive Officer Rebeca Romero Rainey.

“Granting nonbank entities and crypto institutions access to the master accounts traditionally limited to highly regulated insured depository institutions poses risks to the banking system,” she added.

The American Bankers Association also questioned the timing of the decision, arguing that regulators should complete rulemaking processes before granting such approvals.

“With so many related issues still unsettled, including final GENIUS Act rules and the development of a ‘skinny’ master account framework, we have serious questions about why regulators are granting access to the Fed payment system and charters before completing the public notice and comment process that will inform any official guidance,” the group said in a statement.

Kraken Financial, the Wyoming chartered banking arm of crypto exchange Kraken, secured a limited-purpose Federal Reserve master account on Wednesday that allows it to access the central bank’s payments network directly.

Until now, Kraken relied on partner banks to move US dollars in and out of its platform.

Direct access to the Fed’s payment rails allows the firm to settle transactions itself, potentially speeding up deposits and withdrawals for institutional clients and large traders operating in digital asset markets.

The account approved for Kraken Financial comes with restrictions that resemble the “skinny master account” structure the Federal Reserve has been considering for firms focused primarily on payment services. 

According to reporting by the Wall Street Journal, Kraken will not receive the full suite of services available to traditional banks, including the ability to earn interest on reserves or access the Fed’s emergency lending facilities.

The post US banking groups push back after Fed grants Kraken master account access appeared first on Invezz

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