Federal Reserve Governor Christopher J. Waller first proposed the concept of a “skinny” master account (also referred to as a “payment account”) last October, during his opening remarks at the Federal Reserve’s inaugural Payments Innovation Conference. Mr. Waller directed the Fed staff to explore this limited purpose account idea. It would grant eligible institutions basic access to Federal Reserve payment services, such as Fedwire and FedNow, primarily for clearing and settling their own payments. To mitigate risks to the Fed and the payment system, the account would include strict controls, including: No interest paid on balances, no overdraft privileges, conversely, upward limits on overnight holdings or balance caps and no access to the discount window.
Let us explain.
This was not a formal legislative proposal submitted to Congress. Instead, it is an operational initiative under the Federal Reserve’s existing authority. Implementing a “skinny” account would involve internal changes to Reserve Bank account structures and guidelines, but without needing new legislation from Congress because it does not expand eligibility for Fed accounts under the Federal Reserve Act. It remains limited to institutions already legally qualified (e.g., chartered depository institutions), offering only a tiered, restricted version for those that qualify but don’t need (or may not suit) a full traditional master account.
In short, a skinny account is a “stripped-down” version that gives direct access to Fed payment rails (helping reduce reliance on third-party banks and cutting costs/intermediary risks) but removes perks like interest earnings, credit, and borrowing to minimize risks to the central bank. This concept emerged to support payments innovation (e.g., fintechs, neo-banks, or other payment-focused firms) while controlling risks to the Fed and the broader financial system.
The Fed sought public input on the design, risks, benefits, and implementation details, with comments due by February 6, 2026. Governor Waller has indicated that, assuming no major issues, the streamlined payment accounts could become operational by late 2026.
The details.
A normal master account is eligible to depository institutions like traditional banks and credit unions to hold an account directly at a Federal Reserve Bank. It provides broad access to Fed services. Here’s a comparison:
- Purpose
Skinny: Strictly limited to clearing and settling an institution’s own payments (basic access to Fed payment rails as a “settlement inbox/outbox”).
Normal: Full range of services, including payments, liquidity management, and more.
- Interest on Balances
Skinny: No interest paid on balances (to limit size and impact on the Fed’s balance sheet).
Normal: Balances typically earn interest.
- Overdraft/Intraday Credit
Skinny: No daylight overdraft privileges; payments are rejected if the balance hits zero (strict “good funds” only). No access to intraday credit.
Normal: Often allows daylight overdrafts (with limits and potential fees) for many institutions.
- Balance Limits
Skinny: Subject to balance caps (e.g., proposals mention overnight limits like the lesser of $500 million or 10% of the holder’s total assets, adjustable case-by-case).
Normal: Generally no strict caps (though monitored for risk).
- Access to Discount Window / Emergency Borrowing
Skinny: No access to the Fed’s discount window.
Normal: Eligible institutions can typically borrow from the discount window in times of need.
- Approval Process
Skinny: Streamlined review since it’s lower-risk and tailored for payments-focused firms.
Normal: Subject to the Fed’s tiered review process (Tier 1 for traditional banks gets more deference; higher tiers face more scrutiny).
- Eligibility
Both: Limited to institutions legally eligible under the Federal Reserve Act (generally chartered depository institutions, not unlicensed fintechs or nonbanks without a qualifying charter). The skinny account does not expand who can hold a Fed account, it just offers a more limited version for those who qualify but may not need or suit the full master account.
