A significant development has occurred in the United States regarding cryptocurrency companies’ access to the Fed’s payment infrastructure.
Investment bank TD Cowen predicts that more crypto companies could gain access to FED main accounts this year after Kraken’s approval.
Jaret Seiberg, managing director of TD Cowen Washington Research Group, said in a memo today that Kraken’s approval could pave the way for similar applications. Seiberg said: “We consider this to be the first instance of the Fed granting master accounts to crypto companies. Given President Donald Trump’s support for the crypto industry, it was inevitable that crypto companies would gain this access. We expect further announcements in the coming months.”
On Wednesday, Kraken’s banking arm, Kraken Financial, became the first cryptocurrency company to gain access to the Federal Reserve’s major payment systems. The Federal Reserve Bank of Kansas City announced that it has granted Kraken Financial, which operates as Payward Financial, a one-year “limited use” master account. This account would include certain restrictions reflecting the business model and risk profile of the company.
Kraken gained this access through its operation as a Special Purpose Depository (SPDI) licensed in the State of Wyoming. According to regulators, these institutions fall into the “Tier 3” category. While this status legally allows them to apply for a master account, it also subjects them to the strictest scrutiny because they are not under the supervision of a federal banking regulator.
According to Seiberg, the Kansas City Fed’s decision shows that Kraken’s application was carefully considered. However, details regarding the conditions of approval are limited. The analyst believes that the Fed will restrict Kraken’s access to certain services. For example, the company should be denied access to credit facilities such as overdraft facilities or discount windows, and will not earn interest on its reserves held at the Fed.
Seiberg also highlighted a notable aspect of the Kansas City Fed’s decision. It is striking that this approval was given before the “lean main account” model, the formal framework of which the Fed Board of Governors has not yet finalized. Such accounts were expected to be more easily approved because they would limit access to the Fed’s lending programs and would not pay interest on reserves.
On the other hand, the American banking sector reacts strongly to this development. The Bank Policy Institute, which represents big banks, said it was “deeply concerned” that the Kansas City Fed approved a request for a limited-use master account before the Fed board determined its final policy framework.
According to Seiberg, banks will continue to exert legal and political pressure to prevent crypto companies from accessing the FED’s systems. Despite this, TD Cowen believes that in the long term, crypto companies will have access to main accounts.
The FED previously rejected a similar request. In 2023, Custodia Bank’s application to join the FED system was refused on the grounds that the company’s proposal did not comply with legal requirements.
*This does not constitute investment advice.
