A proposal to create “payment accounts” to provide basic Federal Reserve payment services requires “careful design and robust risk mitigants” to uphold the integrity of the payments system and protect the public interest, the American Bankers Association said today.
Fed Governor Christopher Waller last year proposed the creation of “skinny” master accounts that certain financial institutions could use for the limited purpose of clearing and settling payments. In a letter responding to a Fed request for information, ABA said the accounts would provide “a measured pathway” for eligible institutions to engage in payment activities, as long as they are implemented with additional guardrails and direct federal supervision.
“At the same time, the diverse nature of potential applicants — including uninsured entities and firms operating under nonuniform state charters — poses unique challenges,” ABA said. “Many such entities lack a long-run supervisory track record, are not subject to consistent federal safety-and-soundness standards and may rely on evolving statutory or regulatory regimes.”
ABA offered several recommendations for mitigating the potential risk posed by such firms, including conditioning access on an applicant maintaining robust governance, independent risk management, internal controls and compliance functions commensurate with the its size, complexity and activities.
“With the additional safeguards outlined in this letter — direct federal banking agency supervision, enforceable risk management and compliance standards, conservative activity limits, limits on activity on behalf of third parties, prohibitions on nesting arrangements, meaningful financial assurances, and credible recovery and resolution planning — the payment account can promote orderly participation by eligible institutions while preserving the safety, soundness and integrity of the U.S. payments system,” ABA said.
