The decision of the Federal Reserve Bank of Kansas City to approve a limited master account for crypto firm Kraken was designed as a “pilot” to test how certain kinds of nonbanks can access the payments system, Federal Reserve Vice Chair for Supervision Michelle Bowman said today at ABA’s Washington Summit. “We need to think through whether there is a path for nonbank financial institutions to be part of the Federal Reserve System,” she said.
Bowman said that Kraken, a Wyoming-chartered special-purpose depository institution, falls into a grey area between federally regulated depository institutions, for which Fed access is a “no brainer,” and another category of firms that absolutely do not qualify. The Kansas City Fed’s approval of an account for Kraken, for a one-year period and with specific conditions, was “a way we can test how this is going to work,” she commented. “We’re trying to learn.” Should problems arise, she added at that “there are a number of ways we can address behaviors that are not consistent with having a master account.”
Bowman also addressed a number of other issues, including whether supervisors are “calibrating appropriately and tailoring in the right ways” with various asset thresholds. For example, she noted that the Fed’s supervisory practice in recent years has been to start asking banks to comply with requirements of $100 billion-asset banks once they reach $80 billion in assets, which she said “is not what was intended when the framework was established.” Bowman said she is pushing the Fed to use asset thresholds to ease banks into compliance in a staged way.
She also said that the prudential banking regulators would jointly propose a new round of Basel III “endgame” rules in the next few weeks. Bowman is scheduled to outline the proposals in greater detail tomorrow in a speech at a Washington, D.C., think tank.
