Fed opens a narrow payments door to stablecoin issuers, Arthur Hayes warns of bank fallout

Federal Reserve Governor Christopher Waller proposed a new fee account on Oct. 21 that might grant stablecoin issuers and crypto corporations direct entry to Fed fee rails with out full grasp account privileges.

The announcement on the Fed’s inaugural Payments Innovation Conference marked a reversal from the central bank’s guarded stance towards digital asset corporations.

Waller described the idea as a “skinny” grasp account offering primary Fedwire and ACH connectivity whereas stripping out curiosity payments, overdraft services, and emergency lending. The new account creates a payments-only door that might reshape how stablecoin issuers settle greenback flows.

The account would carry steadiness caps, pay no curiosity, supply no daylight overdrafts, and exclude low cost window borrowing.

Firms pursuing full grasp accounts, reminiscent of Custodia Bank, Kraken, Ripple, and Anchorage Digital, may benefit from sooner approval timelines.

The convention assembled roughly 100 non-public sector innovators in what Waller framed as a new period during which “the DeFi business isn’t considered with suspicion or scorn” however is “to the dialog on the longer term of payments.”

Narrow banking and stablecoin construction

The fee account revives narrow banking, separating payments from credit score creation.

Stablecoin issuers already function as de facto narrow banks, holding backed reserves and transferring cash with out lending, however lack direct Fed entry and should associate with business banks to redeem tokens.

Waller’s proposal would let qualifying corporations maintain reserves straight with the Fed, again tokens with central bank cash, and eradicate friction between banks and companions that creates bottlenecks throughout stress.

Direct Fed entry would place compliant US stablecoins nearer to narrow cash, decreasing bank-run threat.

If reserves sit on the Fed relatively than business bank deposits, tokens change into claims on central bank liabilities, eliminating credit score threat.

Caitlin Long, CEO of Custodia Bank, framed the shift as correcting “the horrible mistake the Fed made in blocking payments-only banks from Fed grasp accounts.”

Operational enhancements and trade-offs

Redemption flows could be extra environment friendly if issuers posted and acquired payments straight relatively than routing them by way of associate banks.

The enchancment is mechanical, with fewer steps, decrease latency, lowered dependency on bank hours, however materials throughout heavy flows when redemption queues lengthen.

Issuers redeeming into associate accounts and initiating wires might full each legs with Fed rails, compressing settlement from hours to close to real-time and eradicating the chance that a associate bank freezes transfers.

Balance caps will decide utility for giant issuers. Tether holds reserves within the tens of billions. Strict caps would possibly accommodate operational liquidity however not the entire base, forcing a break up of reserves.

The Fed’s targets, that are controlling steadiness sheet affect and limiting credit score publicity, will form caps, and issuers will weigh direct Fed entry for a slice of reserves versus holding every thing with business banks.

Ripple CEO Brad Garlinghouse argued practically one week earlier than Waller’s speech that crypto corporations that meet banking-grade AML and KYC requirements ought to obtain banking-grade entry to infrastructure, as CoinDesk reported.

Ripple filed a grasp account utility in 2025. Direct Fed entry would enable Ripple to settle greenback legs of cross-border transactions with out utilizing correspondent banks.

The logic applies to exchanges and custodians that depend on bank companions for fiat rails, direct Fed connectivity removes a dependency and a choke level.

Arthur Hayes, co-founder of BitMEX, provided a skeptical take:

“Imagine if Tether didn’t want to depend on a TradFi bank for its existence. The Fed is transferring to destroy business banking within the US.”

The concern is disintermediation. If massive issuers and fee processors entry Fed rails straight, they not want business banks for primary providers, eroding deposit bases whereas concentrating liquidity on the Fed.

The restrictions Waller outlined, reminiscent of no curiosity, steadiness caps, and no overdrafts, purpose to thread the needle to help payments innovation with out making the Fed the first deposit taker or assuming credit score threat on nonbanks.

Here’s what adjustments

Waller directed Fed workers to collect stakeholder suggestions, however didn’t specify a timeline.

The GENIUS Act, signed into regulation in July 2025, established federal stablecoin necessities however didn’t grant direct Fed entry.

Waller’s proposal fills that hole. Firms with pending functions might see sooner choices. Banks with fee subsidiaries might apply first, whereas crypto-native fintechs observe as soon as the framework solidifies.

The fee account formalizes crypto’s entry into Fed-supervised infrastructure. If main issuers achieve Fed accounts, the affect on liquidity and settlement high quality turns into systemic.

Fed-backed reserves can’t be frozen by a business bank or topic to intermediate establishment credit score threat, compressing settlement threat throughout stress.

Regulatory arbitrage narrows as offshore issuers or these unwilling to meet GENIUS Act requirements lose floor to US-regulated issuers providing Fed-backed tokens with structural security benefits, consolidating market share amongst compliant corporations.

Waller’s proposal opens a payment-only door into the Fed beneath steadiness caps and tight restrictions, revives narrow banking, positions compliant stablecoins as central bank-backed devices, and creates a stage enjoying discipline whereas disintermediating some business bank providers.

The coverage shift integrates crypto into the payments system beneath supervision, with direct settlement decreasing fragility and recognizing that digital asset infrastructure has moved from the fringes to the core of how {dollars} transfer.

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