Notice2026-10375
Proposed Revisions to the Federal Reserve Policy on Payment System Risk and the Guidelines for Account and Services Requests
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Published
May 26, 2026
Issuing agencies
Federal Reserve System
Abstract
The Board of Governors of the Federal Reserve System (Board) is issuing a notice and request for comment on proposed revisions to the Federal Reserve Policy on Payment System Risk (PSR Policy), including the proposed addition of a new Part IV, to accommodate the provision by Reserve Banks of special-purpose accounts that would clear and settle certain payment activity (Payment Accounts). The Board is also proposing updates to its guidelines for Federal Reserve Banks (Reserve Banks) to utilize in evaluating requests for access to Reserve Bank account and services (Account Access Guidelines or Guidelines) to accommodate requests for access to Payment Accounts. Finally, the Board is encouraging Reserve Banks to pause decisions on requests for Reserve Bank accounts and services from institutions that are Tier 3 under the Account Access Guidelines until the Board has completed its policy development process on the Payment Account proposal.
Full Text
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<title>Federal Register, Volume 91 Issue 100 (Tuesday, May 26, 2026)</title>
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[Federal Register Volume 91, Number 100 (Tuesday, May 26, 2026)]
[Notices]
[Pages 30627-30653]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-10375]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1878]
Proposed Revisions to the Federal Reserve Policy on Payment
System Risk and the Guidelines for Account and Services Requests
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice and request for comment.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is issuing a notice and request for comment on proposed revisions to
the Federal Reserve Policy on Payment System Risk (PSR Policy),
including the proposed addition of a new Part IV, to accommodate the
provision by Reserve Banks of special-purpose accounts that would clear
and settle certain payment activity (Payment Accounts). The Board is
also proposing updates to its guidelines for Federal Reserve Banks
(Reserve Banks) to utilize in evaluating requests for access to Reserve
Bank account and services (Account Access Guidelines or Guidelines) to
accommodate requests for access to Payment Accounts. Finally, the Board
is encouraging Reserve Banks to pause decisions on requests for Reserve
Bank accounts and services from institutions that are Tier 3 under the
Account Access Guidelines until the Board has completed its policy
development process on the Payment Account proposal.
DATES: Comments must be received on or before July 27, 20.
ADDRESSES: You may submit comments, identified by Docket No. OP-1878,
by any of the following methods:
<bullet> Agency Website: <a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a>. Follow the instructions for submitting comments, including
attachments. Preferred Method.
<bullet> Mail: Benjamin W. McDonough, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
<bullet> Hand Delivery/Courier: Same as mailing address.
<bullet> Other Means: <a href="/cdn-cgi/l/email-protection#6f1f1a0d03060c0c0002020a011b1c2f091d0d41080019"><span class="__cf_email__" data-cfemail="25555047494c46464a4848404b5156654357470b424a53">[email protected]</span></a>. You must include
docket number in the subject line of the message.
Comments received are subject to public disclosure. In general,
comments received will be made available on the Board's website at
<a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a> without change and will
not be modified to remove personal or business information including
confidential, contact, or other identifying information. Comments
should not include any information such as confidential information
that would be not appropriate for public disclosure. Public comments
may also be viewed electronically or in person in Room M-4365A, 2001 C
St. NW, Washington, DC 20551, between 9 a.m. and 5 p.m. during Federal
business weekdays.
FOR FURTHER INFORMATION CONTACT: Jason Hinkle, Associate Director,
Zineb York, Manager, Kristopher Natoli, Manager, or Brajan Kola, Lead
Financial Institution Policy Analyst, Division of Reserve Bank
Operations and Payment Systems; or Corinne Milliken Van Ness, Senior
Counsel, or Sumeet Shroff, Senior Counsel, Legal Division, Board of
Governors of the Federal Reserve System: (202) 452-3000. For users of
TTY-TRS, please call 711 from any telephone, anywhere in the United
States or (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Board is seeking comment on a proposal to revise the PSR Policy
and the Account Access Guidelines to accommodate the provision of
Payment Accounts by Reserve Banks.
This notice is organized into eight sections. Section I contains
background on the Account Access Guidelines and the PSR Policy, a
description of developments in the payments ecosystem since the Board
issued the Account Access Guidelines, and an overview of the Board's
Request for Information (RFI) on the Payment Account prototype. Section
II provides a summary of comments on the RFI and the Board's responses.
Section III.A describes the Board's proposal to offer a Payment Account
and the risk-mitigating terms of the Payment Account.\1\ Section III.B
summarizes the
[[Page 30628]]
proposed amendments to the PSR Policy to accommodate the Payment
Account. Section III.C summarizes the proposed amendments to the
Account Access Guidelines (i) to accommodate the Payment Account, (ii)
to update the review framework to accommodate the Payment Account, and
(iii) to introduce timing expectations for reviewing certain access
requests. Section IV requests comment on the proposal as a whole and
sets out specific questions on which the Board is soliciting the
public's input. Section V analyzes the competitive impact of the
proposal. Section VI includes the Board's analysis of the proposal
under the Regulatory Flexibility Act and the Paperwork Reduction Act
and includes other administrative law matters. Finally, Sections VII
and VIII contain the proposed amendments to the PSR Policy and the
Account Access Guidelines, respectively.
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\1\ As used in this notice, the phrase ``Payment Account terms''
(and similar phrases) refers to the standard set of parameters of
the Payment Account as proposed by the Board in proposed revisions
to Regulation A, Regulation D, the Account Access Guidelines and the
PSR Policy and as would be implemented by the Reserve Banks through
their Operating Circulars and other agreements.
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A. Statutory Background, the Account Access Guidelines, and the PSR
Policy
The Reserve Banks may provide accounts (accounts) and financial
services (services) to institutions as authorized by federal law.
Reserve Banks generally provide accounts and services to member banks,
depository institutions, and branches and agencies of foreign banks
pursuant to sections 13(1) and 13(14) of the Federal Reserve Act
(FRA).\2\
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\2\ The first paragraph of section 13(1) provides that a Reserve
Bank ``may receive from any of its member banks, or other depository
institutions . . . deposits of current funds in lawful money . . .
.'' 12 U.S.C. 342. ``Depository institution'' is defined in section
19(b)(1)(A) of the FRA. 12 U.S.C. 461(b)(1)(A). Section 13(14) of
the FRA provides that, ``[s]ubject to such restrictions,
limitations, and regulations as may be imposed by the [Board], each
[Reserve Bank] may receive deposits from . . . any branch or agency
of a foreign bank in the same manner and to the same extent that it
may exercise such powers with respect to a member bank if such
branch or agency is maintaining reserves with such Reserve Bank
pursuant to section 7 of the International Banking Act of 1978.'' 12
U.S.C. 347d.
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Pursuant to section 11(j) of the FRA, the Board exercises general
supervision over the Reserve Banks.\3\ In supervising and overseeing
the activities of the Reserve Banks, the Board may issue guidance to
the Reserve Banks regarding the provision of accounts and services. On
August 15, 2022, after a public comment process, the Board adopted the
Account Access Guidelines, which the Reserve Banks utilize in
evaluating access requests.\4\ The Guidelines establish a transparent,
risk-based, and consistent set of factors for Reserve Banks to use in
reviewing access requests from legally eligible institutions. The
Guidelines incorporate a tiering framework under which access requests
from certain types of entities (e.g., non-federally insured
institutions) are subject to greater due diligence and scrutiny than
access requests from other types of entities (e.g., federally insured
institutions). The tiering framework acknowledges the spectrum of
regulatory and supervisory frameworks that apply to institutions that
may request access. For example, federally insured institutions (Tier
1) are subject to a comprehensive and consistent set of federal banking
regulations and, in most cases, detailed regulatory and financial
information about these firms is readily available. These institutions
are therefore generally subject to a less intensive and streamlined
review under the Guidelines relative to institutions in higher tiers.
On the other end of the spectrum, non-federally insured institutions
that are not subject to prudential supervision by a federal banking
agency at the institution or holding company level (Tier 3) may be
subject to a supervisory or regulatory framework that is substantially
different from the supervisory and regulatory framework that applies to
federally insured institutions, and their access may pose the highest
level of risk. Accordingly, access requests from Tier 3 institutions
receive the strictest level of review under the Guidelines.
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\3\ 12 U.S.C. 248(j).
\4\ 87 FR 51099 (Aug. 19, 2022) (as amended by 89 FR 100495
(Dec. 12, 2024). The Guidelines do not apply to accounts provided
under fiscal agency authority, to accounts authorized pursuant to
the Board's Regulation N (12 CFR part 214), to joint account
requests, or to account requests from designated financial market
utilities, since existing rules or policies already set out the
considerations involved in evaluating requests for these types of
accounts.
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The PSR Policy addresses the risks that payment, clearing,
settlement, and recording activities present to the financial system
and to the Reserve Banks. In adopting the PSR Policy, the Board's
objectives were to foster the safety and efficiency of payment,
clearing, settlement, and recording systems, and to promote financial
stability more broadly. The PSR Policy consists of three parts.\5\ Part
I sets forth the Board's views and related standards regarding the
management of risks in certain payment, clearing, and settlement
systems. Part II of the PSR Policy outlines the methods the Reserve
Banks use to provide intraday credit, also known as daylight
overdrafts, while controlling credit risk posed to the Reserve Banks.
Part III of the PSR Policy governs the Board's policy on overnight
overdrafts in Reserve Bank accounts.
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\5\ See <a href="https://www.federalreserve.gov/paymentsystems/psr_about.htm">https://www.federalreserve.gov/paymentsystems/psr_about.htm</a>.
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B. Developments Since Issuance of the Account Access Guidelines
The payments ecosystem continues to evolve rapidly. Technological
progress, statutory developments, consumer and business preferences,
and other factors are driving both the introduction of innovative
financial products and services and new approaches to the traditional
banking functions of payments, deposit-taking, and lending.
The Board continues to monitor developments in the payments
ecosystem, including the development of new financial products and
technologies. Since the Board issued the Account Access Guidelines, the
types of institutions seeking accounts and services have continued to
evolve. Several institutions focused on payments innovation have
explained that they are interested in direct access to accounts and
services, as opposed to having to rely on third-party intermediaries to
access services, to reduce costs to their customers while increasing
payment processing speed. These institutions have also argued that
direct access to accounts and services would reduce the concentration
risk created by their reliance on a limited number of third-party
intermediaries for accessing services. Direct access, in their view,
would reduce risks to the overall payment system. Some of these
institutions have requested either a state or federal banking charter,
and a few have initiated requests for accounts and services.
Many of these institutions are legally eligible for accounts and
services, and they are often considered Tier 2 or Tier 3 institutions
under the Board's Account Access Guidelines.\6\ Some Tier 2 and Tier 3
institutions that have requested, or expressed interest in requesting,
access have voiced concern about the length of time that Reserve Banks
take to review access requests and the high likelihood of denial.
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\6\ Non-federally insured institutions are Tier 2 under the
Guidelines' tiering framework if they are subject to federal
prudential banking supervision and (1) if they are state chartered
and have a holding company that is subject to Federal Reserve
oversight (by statute or commitment) or (2) if they are federally
chartered, they have a holding company that is subject to Federal
Reserve oversight (by statute or commitment). All other non-
federally insured institutions are Tier 3 under the Guidelines.
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C. Overview of Request for Information on Payment Account Prototype
On December 23, 2025, the Board published an RFI seeking public
input
[[Page 30629]]
on a special-purpose Payment Account prototype tailored to the needs
and risks of institutions focused on payments innovation.\7\
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\7\ See 90 FR 60096 (Dec. 23, 2025).
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The RFI contemplated that a Payment Account would be designed for
the purpose of clearing and settling the Payment Account holder's
payment activity, and that Payment Accounts would have a common set of
risk-mitigating terms. Consistent with the Reserve Banks' legal
authorities, only institutions that are legally eligible to maintain
accounts with a Reserve Bank would be eligible to maintain a Payment
Account. The Payment Account would be subject to an overnight balance
limit. The Board explained that it was considering setting the
overnight balance limit at the lesser of $500 million or 10 percent of
the relevant Payment Account holder's total assets.\8\ Balances in a
Payment Account would not receive interest. The RFI also contemplated
that a Payment Account holder would not have access to Reserve Bank
credit, either through the discount window or through intraday credit.
Given the lack of access to intraday credit, Payment Account holders
would only have access to services with automated controls to prevent
overdrafts: Fedwire[supreg] Funds Service, the FedNow[supreg] Service,
the National Settlement Service (NSS), and the Fedwire Securities
Service for transfers free of payment.\9\ Payment Account holders would
not be permitted to act as correspondent banks, and a Payment Account
could not be used to settle a respondent institution's activity.\10\
The Board also noted that it was exploring additional risk controls and
conditions to cover areas such as risks to the payment system or risks
associated with illicit finance.
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\8\ The institution's total assets would be determined by its
most recent report to its primary banking regulator or equivalent.
\9\ ``Fedwire'' and ``FedNow'' are service marks of the Federal
Reserve Banks. A list of marks related to financial services
products that are offered to financial institutions by the Federal
Reserve Banks is available at <a href="http://FRBservices.org">FRBservices.org</a>[supreg].
\10\ Section III.A.2 of this notice clarifies that the proposed
prohibition on Payment Account holders acting as correspondent banks
refers to that term as defined in the Reserve Banks' Operating
Circular 1.
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The RFI explained that, consistent with a Payment Account's lower
residual risk profile given its mitigating terms, a request for a
Payment Account would generally receive a more streamlined review than
a request for a Master Account from the same institution. Accordingly,
the RFI proposed that a Reserve Bank generally would complete its
review of a Payment Account request within 90 calendar days following
receipt of all documentation requested by the Reserve Bank.\11\
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\11\ The RFI acknowledged that additional due diligence might be
required in some cases. If a Reserve Bank needed additional time to
complete its review, the Reserve Bank would be expected to consult
with the Board.
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II. Comments on the Request for Information <SUP>12</SUP>
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\12\ As described elsewhere in today's Federal Register, the
Board is requesting comment on proposals to amend Regulation A (12
CFR part 201) (the Regulation A Notice) so that that Payment Account
holders would not be eligible to access the discount window and
Regulation D (12 CFR part 204) (the Regulation D Notice) so that
balances in the Payment Account would not earn interest. Comments on
those aspects of the RFI are discussed in the Regulation A Notice
and Regulation D Notice.
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The Board received 72 comment letters on the RFI. Commenters
represented several types of institutions and organizations, including
(1) non-traditional institutions, including those focused on payments
or crypto, along with their trade associations; and (2) traditional
banks, including community banks, and their trade associations.
Comments on the Payment Account tended to divide along industry lines.
Non-traditional institutions generally supported the proposal, with
many seeking access to a wider range of services or fewer controls.
Traditional banks and related trade associations generally expressed
concerns with the proposal, with many favoring additional restrictions
or controls.
A. Eligibility
1. Summary of Comments
Several commenters requested the Board clarify legal eligibility to
access accounts and services. One commenter asserted that legal
eligibility remains a source of confusion and asked the Board to
specifically address eligibility by institution type. Another commenter
asked the Board to clarify that the establishment of a Payment Account
does not alter the statutory eligibility for a Master Account.
Some commenters argued that legal eligibility should be further
limited. Several commenters stated that a Master Account should be
limited to Tier 1 institutions, and a few commenters stated that a
Payment Account should also be limited to Tier 1 institutions. One
commenter stated that Payment Account eligibility should be limited to
Tier 1 and Tier 2 institutions. Another commenter stated that Master
Account eligibility should be limited to Tier 1 and Tier 2
institutions, and that Tier 3 institutions should only be eligible for
a Payment Account.
Some commenters discussed whether the Board could expand legal
eligibility. One commenter requested that the Board expand eligibility
for a Payment Account to money transmitter license holders that meet
certain requirements. Another commenter advocated for all regulated
stablecoin providers to be eligible for a Payment Account, arguing that
nonbank stablecoin providers will be at a competitive disadvantage if
they are not eligible for a Payment Account. Another commenter argued
that providing access to stablecoin issuers should not be done without
clear Congressional authorization. A few commenters noted that
decisions by other agencies to grant charters to institutions with
novel business models would effectively expand the institutions
eligible to request a Payment Account. One commenter emphasized that
any expansion of legal eligibility for Reserve Bank account access
should be addressed by Congress through legislation, and another
commenter supported Congressional action to expand eligibility to
nonbank payment providers.
2. Board Response
Federal law--as enacted by Congress--dictates the entities that are
eligible to maintain an account at a Reserve Bank. Currently, any
institution that satisfies the legal eligibility requirements for an
account under the FRA or other federal law is eligible to request a
Master Account. Under the proposal, these same institutions (i.e.,
those that satisfy the legal eligibility requirements for an account)
would have the option of requesting either a Payment Account or a
Master Account.
B. General Design of the Payment Account
1. Summary of Comments
Most of the comment letters received provided views about the
extent to which the Payment Account's design would support an eligible
institution's payment activity, the use cases it would best facilitate,
and the use cases it might not facilitate.
Commenters noted that the Payment Account's design could address
some, but not all, of eligible institutions' core payment needs. Many
indicated that direct access to services, particularly the Fedwire
Funds Service and the FedNow Service, could reduce costs for smaller
institutions and consumers when considering current transaction fees
associated with correspondent banking. The Payment Account was viewed
as suitable for more routine, pre-funded payments by businesses and
consumers.
[[Page 30630]]
Some of the examples of use cases provided by commenters included
instant access to wages or refunds, person-to-person or business-to-
business transfers, pay-by-bank at checkout, payments related to
stablecoins or other tokenized assets and, potentially, the U.S. dollar
leg of cross-border transactions. Multiple commenters expressed
particular interest in the benefits of the Payment Account for
tokenization and stablecoins. They argued that a Payment Account could
enable effective development of tokenization platforms that facilitate
the transfer and settlement of tokenized securities in central bank
money. Other commenters focused on how a Payment Account would improve
stablecoin issuer operations through better reserve management and
issuance and redemption. Additionally, several commenters noted that a
Payment Account could improve functionality by fostering stablecoin-
dollar fungibility and improving interoperability and settlement
between different stablecoins. Some commenters noted improvement in
general treasury management as a potential benefit of the Payment
Account.
Several commenters asserted that excluding direct access to FedACH
Services (FedACH) would significantly limit the use cases that the
Payment Account could satisfy because of ACH's prominence in payroll,
bill payments, and business-to-business payments. In addition to pre-
funding ACH credit originations, some commenters expressed a
willingness to maintain a minimum amount of balances or otherwise post
collateral to mitigate the credit risk of other types of ACH
transactions (for example, when a Payment Account receives a debit
transaction, which would pull funds out of a Payment Account). At least
one commenter suggested that Payment Account holders should be
restricted from receiving any debit transaction.
Additionally, commenters offered varied opinions about how access
to other Federal Reserve services, such as NSS and the Fedwire
Securities Service, would affect the use cases the Payment Account
could or could not support. While one commenter suggested that allowing
Payment Account holders to access Fedwire Securities Service's
delivery-versus-payment functionality could facilitate movement of
Treasury securities, particularly for stablecoin issuers and entities
engaged in repo and reverse repo transactions, another commenter stated
that Payment Account holders should not have access to either the
Fedwire Securities Service or NSS. Finally, one commenter noted that
the Payment Account's prohibition on correspondent-respondent
relationships could limit the services Payment Account holders could
provide to third parties.
2. Board Response
While the Board recognizes several commenters' desire for Payment
Account holders to have access to the full range of services, the Board
believes that doing so would undermine the objectives of Payment
Accounts as special-purpose accounts designed to minimize risk. The
Board's goal is to support private-sector innovation in payments while
ensuring that the risks identified in the Account Access Guidelines
continue to be managed prudently. The Board believes that, on balance,
this proposal would create a structured framework that would facilitate
innovation in areas where providing Payment Account holders with direct
access to the Fedwire Funds Service, the FedNow Service, NSS, and the
Fedwire Securities Service for transfers free of payment would provide
meaningful value. The Board understands that some commenters do not
believe Payments Accounts should have access to NSS or do not identify
use cases for NSS access; the Board believes, however, that the
proposed Payment Account terms mitigate potential risk associated with
granting access to NSS. Therefore, given the goal of supporting
private-sector innovation, the Board believes it is appropriate to make
access to NSS an option for a Payment Account holder.
For the reasons explained in Section III.A.1 the Board is proposing
to exclude access to the Fedwire Securities Service for delivery versus
payment transactions. Similarly, Section III.A.2 discusses the Board's
rationale for prohibiting Payment Account holders from acting as OC 1
Correspondents or OC 1 Respondents (defined in Section III.A.2) under
the Reserve Banks' Operating Circular 1 (OC 1).\13\
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\13\ As explained in Section III.A.2, OC 1 permits a
contractually defined Correspondent-Respondent relationship that
differs from a traditional commercial correspondent-respondent
relationship through which a financial institution processes
payments on behalf of its depositors and customers.
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When considering whether to provide Payment Account holders with
access to FedACH, the Board considered FedACH's unique characteristics.
Unlike Fedwire Funds Service or FedNow Service transactions, banks can
originate both credit-push and debit-pull ACH payments, commingled into
batches containing many payments that are processed together.\14\ As
background, credit originations result in a debit to the account of the
sending bank and a credit to the receiving bank (such as for payroll
payments). Debit originations result in the reverse: a credit to the
account of the sending bank and a debit to the receiving bank (such as
for bill payments that a consumer authorizes in advance). If there is
an issue with either a credit or debit origination, such as an
incorrect payee or insufficient funds, the transaction must be returned
by the receiver within a specific time frame (up to two days later for
business payments and up to 60 days later for consumer payments).
Additionally, a bank that originated an ACH payment could reverse the
payment if it contained an error. As a result, a bank whose account was
credited could have its account debited in the following days or months
due to an issue with the original transaction.
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\14\ The original ACH networks were designed to leverage the
Federal Reserve's existing check operations, using its
infrastructure and transportation services because the ACH process
paralleled the processing and settlement of checks, except that in
the case of ACH, ground and air transportation services were used to
move magnetic tapes, punch cards, or printed advices instead of
checks.
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With respect to access to financial services through Payment
Accounts, ACH's unique characteristics materially alter the relevant
considerations compared to the Fedwire Funds Service and the FedNow
Service. Unlike ACH, those systems are real-time gross settlement
systems with final and irrevocable settlement of credit transfers and
real-time reject controls, which ultimately allows the Reserve Banks to
prevent an account holder from making individual FedNow Service or
Fedwire Fund Service payments that would overdraw their account. ACH is
different; it employs deferred settlement, batch processing, and the
provision of returns and reversals for both credit and debit transfers
would require a complex, layered set of ACH controls to prevent Payment
Account overdrafts. For example, today, account holders that are
subject to enhanced credit risk scrutiny by the Reserve Banks can be
required to prefund the value of ACH credits they originate, to protect
against account overdrafts at settlement.\15\ This control could
likewise be imposed on Payment Account holders in order to limit the
risk of overdrafts from a Payment Account holder's origination of ACH
credits, but it would only address the
[[Page 30631]]
credit risk from that one discrete type of ACH transaction.
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\15\ The prefunding control automatically sets funds aside at
the time of origination and earmarks the funds for use at the time
of settlement.
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The Board believes a minimum balance or collateralization approach
would not sufficiently mitigate the credit risk from ACH debits
received by Payment Accounts, because the Reserve Banks do not have the
ability to predict debit transactions with sufficient accuracy or limit
the amount of debit transactions a Payment Account could receive to a
certain threshold.\16\
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\16\ The Reserve Banks have the ability to share information
with an account holder about expected activity in the account and to
warn an account holder if its balance is low, but these are
notification mechanisms only and cannot prevent transactions from
overdrawing an account.
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The only way for Reserve Banks to sufficiently mitigate their
credit risk from ACH debit transactions would be to restrict Payment
Account holders from receiving any debit transactions. However, it
would be unprecedented within the ACH network, and highly disruptive to
the efficient operation of the network and other participants, to
attempt to introduce a broad class of ACH participants that is
generally not allowed to receive debit transactions but is allowed to
engage in other transaction types.\17\ The ubiquity of the ACH network
is in part driven by the expectation that banks can generally send and
receive debits and credits to all other participants on the network at
all times, and this expectation is codified in many network rules.
Another essential aspect of the efficiency and ubiquity of ACH is the
ability to return or reverse transactions for a range of problems after
the fact. Prohibiting Payment Accounts from receiving any ACH debits
would undermine a fundamental element of the ACH network by effectively
eliminating the ability to process returns and reversals for ACH debit
transactions originated by a class of ACH participants.\18\
Institutions need the ability to manage effectively the inherent risks
of debit transactions, including fraudulent or otherwise unauthorized
payments, to ensure the safety of the payment system. Restricting the
ability of Payment Account holders to receive debits, which would be
necessary to manage credit risk to the Reserve Banks, would
dramatically reduce other institutions' ability to manage their own
risks.
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\17\ The restriction against receiving debits is used today only
in limited cases such as when a bank is merging or closing.
\18\ If a Payment Account holder were able to originate but not
receive debits, it could originate a debit transaction that its
counterparty would be unable to return if the debit was unauthorized
or had another issue. The counterparty would have to seek another
way to have the Payment Account holder return the affected funds,
and in the meantime the counterparty would have to refund its own
customer for the problematic debit. This dynamic could create
significant confusion and credit risk for other participants in the
ACH network.
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Further, restricting debit receipts would remove important use
cases from the ACH network for Payment Account holders and their
counterparties, reducing the general utility of ACH. Prohibiting
Payment Accounts from receiving ACH debits therefore would mitigate
credit risk to the Reserve Banks but result in unacceptable degradation
to the function of the ACH network and have significant negative
effects on other participants' use of the network.
Based on these considerations, the Board does not believe there is
a reasonable way to allow Payment Accounts to access FedACH and
effectively mitigate credit risk to the Reserve Banks without
disrupting the ACH network and potentially undermining its efficiency
and effectiveness.\19\
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\19\ To adequately limit access to FedACH, the Reserve Banks
would also not enter into settlement agreements with payment account
holders to settle interoperator ACH transactions.
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The Reserve Banks may modify their systems' controls over time. If
the Reserve Banks' systems' controls were to change, the Board might
reconsider the suite of services to which Payment Accounts are given
access. In the interim, institutions seeking access to additional
services may request a Master Account.
C. Impact on Barriers to Innovation
1. Summary of Comments
In the RFI, the Board asked about what barriers to payments
innovation the Payments Account would eliminate or alleviate. Many
commenters indicated that the Payment Account would alleviate or
eliminate barriers to innovation in the payments system. Some of these
commenters identified the reliance on intermediaries as the primary
barrier that the Payment Account would address, noting that firms
without Master Accounts must currently settle transactions through
their existing third-party intermediaries. Commenters indicated that
removing this barrier would reduce counterparty risk, decrease the
costs and fees associated with accessing services through
intermediaries, increase the speed of settlement, and improve the
competitive environment for payment services by leveling the playing
field for new entrants. One commenter noted that fintech payment
providers must often rely on the banks with which they are competing to
provide them with correspondent services. Relatedly, some commenters
noted that having direct access to services through a Payment Account
would provide them with greater operational independence and the
ability to design better, more efficient processes.
A few commenters disagreed that reducing reliance on intermediaries
would effectively alleviate barriers to innovation. Some commenters
noted that institutions rely on intermediaries for risk mitigation, and
that reducing reliance on intermediaries will shift risk-management
obligations entirely onto the requesting entity itself, without
reducing the overall need for risk and compliance controls. These
commenters argued that this approach would move the responsibility from
a supervised bank to an entity that may have less oversight, fewer
resources, or a more limited compliance infrastructure.
Some commenters provided additional observations on the Payment
Account's potential benefits. A few commenters noted that Payment
Accounts would increase visibility into dollar activity, while another
commenter noted that combined with digital settlement technologies,
Payment Accounts can reduce frictions and help the U.S. dollar maintain
global leadership while enabling innovation and cross-border
interoperability.
2. Board Response
The Board believes that the Payment Account could support private-
sector innovation by reducing (1) the uncertainty, time, and related
costs of obtaining access; and (2) the reliance on intermediaries.
This, in turn, could increase competition in the payments marketplace
and allow institutions to design innovative and efficient services that
better leverage all the capabilities of the services to which the
Payment Account will have access. The Board reiterates its expectation
that Reserve Banks assess access requests against the Account Access
Guidelines, and this would apply to the proposed Payment Account as
well. Payment Account holders would be expected to meet the Account
Access Guidelines' risk-management expectations and have in place
appropriate operational and risk-management frameworks.
D. Limit on Closing Balances
1. Summary of Comments
Over half the comments received discussed the RFI's proposed
balance limit. Although the Board received comments on the overall
purpose and need for a limitation on overnight balances, a large
majority of comments addressed the balance limit amount, the
[[Page 30632]]
methodology for determining the limit, or both.
With respect to overall purpose and need, some commenters noted the
importance of a limit to minimize the effects of Payment Accounts on
the Federal Reserve's balance sheet; discourage the use of Payment
Accounts as a store of value; and create an account that complements,
rather than disrupts, the banking system. One commenter argued that a
balance limit could support monetary policy transmission and mitigate
concerns about narrow bank dynamics or deposit flight in periods of
stress. Several commenters asserted that a balance limit was
unnecessary because Payment Accounts would not receive interest. Two
commenters suggested that, in lieu of a limit, Payment Account balances
could receive interest up to a threshold level.
Regarding the limit amount, although one commenter viewed the RFI's
balance limit amount as too high and another suggested a lower limit
during an initial phase, a substantial number of commenters stated that
the proposed limit would be too low. Commenters indicated the limit
should be set at a level that accommodates the actual operating
liquidity needs of account holders, and that high-volume payments
business models may require a greater overnight limit to fund opening
settlements. Some suggested that the limit would disproportionately
impact smaller institutions. One suggested a uniform limit of $250 to
$500 million and stated that the suggested level would not have a
meaningful impact on the Federal Reserve's balance sheet. One commenter
recommended setting the limit solely at 10 percent of total assets,
rather than the lesser of $500 million or 10 percent of total assets.
Other commenters suggested raising the balance limit to between 25 and
40 percent of total assets or a graduated asset-based limit.
Many commenters indicated that the balance limit should be
calibrated to an institution's payment activity. Commenters noted that,
for a payment-oriented institution, an asset-based limit may not
reflect the institution's actual payment needs and that such a limit
could inhibit growth. They also noted that an asset-based limit could
cause inefficiencies and that an activity-based limit could promote the
smooth functioning of the payment system and reduce operational risk.
Commenters provided a variety of suggestions for an activity-based
methodology. Some commenters recommended a balance cap commensurate
with historical or near-term anticipated settlement needs and noted the
need for 24/7/365 operational continuity during weekends and multi-day
holiday windows. Other commenters noted the need for flexibility,
including around events such as holidays and quarter ends, to meet the
needs of firms that move large and concentrated amounts (such as
payroll firms), and to accommodate unusual circumstances. Another
commenter suggested that the asset-based limit set forth in the RFI
should serve as an upper bound for an activity-based limit. Other
commenters suggested stress-based limits, such as a limit based on an
institution's stressed one-day liquidity needs.
Commenters also raised other suggestions regarding the balance
limit. One commenter suggested establishing an institution's balance
limit based on the business plan it provides to its chartering
authority. Another commenter suggested establishing a limit that
increases over time as a Payment Account holder demonstrates its safe
payment operations. Other commenters stated that upward adjustments to
an institution's limit should be subject to established public
standards. Two commenters addressed stablecoin issuers specifically,
with one proposing a limit of 10 percent of circulating payment
stablecoin supply, and the other proposing that a balance limit should
account for the likelihood that dollar-based stablecoins will displace
physical currency over time.
One commenter suggested that, for smaller institutions, the Board
could consider calibrating the balance limit and interest rate
prohibitions by deploying them in complementary ways, which the
commenter stated could preserve the Payment Account's purpose, avoid
unintended incentives for intraday volatility and underfunding
accounts, and better align operational resiliency with the Board's
monetary policy objectives.
2. Board Response
The Board's goal in proposing a special-purpose Payment Account is
to support private-sector innovation in payments while ensuring that
the risks identified in the Account Access Guidelines continue to be
managed prudently. As further explained in Section III.A.4, as part of
a Payment Account's standard terms, the Board believes that
establishing a balance limit, to be measured at the Federal Reserve's
daily close of business, is important to mitigate potential risks
related to financial stability and the implementation of monetary
policy. Many of the comments received supported this premise.
In reviewing the comments received, the Board recognizes that
calling this limit an ``overnight balance limit'' could result in
confusion about when the limit applied, especially whether there would
be a balance limit during what many businesses consider overnight
hours, but when the FedNow Service or the Fedwire Funds Service is
operational (e.g., 10 p.m. ET). To avoid any potential confusion, the
Board refers to the balance limit as a ``Closing Balance Limit'' in
this proposal. While commenters did not specifically raise questions
around when the limit would apply, the Board believes that some
comments about the size of the balance limit may also be addressed by
clarifying the mechanics of the limit. The proposal also clarifies that
the balance limit would apply solely at the close of the Federal
Reserve's business hours.\20\
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\20\ See infra Section III.A.4.
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The Board has carefully reviewed the factors that commenters
suggested should be considered in the design and implementation of the
Closing Balance Limit. In particular, the Board recognizes that an
asset-based limit may not reflect a payment-oriented institution's
actual payment needs and that the net benefits of the Payment Account
would be enhanced if the limit were calibrated to an individual
institution's payment activity. However, as discussed in Section
III.A.4 the Board continues to believe that having a uniform upper
bound for setting the balance limit would mitigate potential risks
related to financial stability and the implementation of monetary
policy. As a result, the Board is proposing that the relevant Reserve
Bank will set an individual Closing Balance Limit, not to exceed $1
billion, based on the Reserve Bank's analysis of the Payment Account
holder's payment flows (if available), in particular at the beginning
of the Federal Reserve's business day, and take into consideration
periods of time when external sources of liquidity may be limited, such
as during weekends and holidays.
E. Limit on Intraday Credit Access
1. Summary of Comments
Several commenters said the lack of access to intraday credit would
make the Payment Account less appealing or useful for its intended
purpose. For example, one commenter noted that the combination of low
balance caps and the prohibition on daylight overdrafts would increase
the risk of failed payments.
[[Page 30633]]
Conversely, multiple commenters noted that the lack of intraday
credit is an appropriate risk mitigant of the Payment Account design.
Additionally, some commenters suggested that Reserve Banks implement
intraday liquidity monitoring and tools to reject transactions that
would result in a negative account balance, further reinforcing the
goal of requiring prefunding for the Payment Account.
2. Board Response
The lack of access to intraday credit is a central feature of the
Payment Account as proposed. Although providing intraday credit can
foster the smooth operation of the payment system, the Board is
proposing to design the Payment Account to minimize its operational
complexities and risk profile. This design would enable the Reserve
Banks to provide timely, direct access to accounts and services to
institutions with novel and diverse business models and risk profiles.
Prohibiting access to intraday credit would facilitate this goal by
minimizing credit risk to the Reserve Banks, thus reducing the
complexity of the risk assessment required for Payment Account
requests.
If an institution desires access to intraday credit, the
institution should consider requesting a Master Account, which may
provide access to a broader range of services but would likely be
subject to greater due diligence and scrutiny relative to a request for
a Payment Account from the same institution.\21\ As discussed in
Section III.A.1, consistent with some commenters' suggestions, the
Board notes that Payment Accounts would only be permitted access to
those services for which the Reserve Banks have automated tools to
reject transactions that would result in a negative account
balance.\22\
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\21\ See also infra Section III.A.1.
\22\ See also supra Section II.B.2 (discussing FedACH).
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F. Effect of Providing Payment Accounts on the Risks Identified in the
Account Access Guidelines
1. Summary of Comments
Commenters expressed differing views on the effect that providing
Payment Accounts would have on the risks identified in the Account
Access Guidelines. Some commenters stated that the design features of
the Payment Account, such as no daylight overdrafts and the Closing
Balance Limit, inherently limit credit and liquidity risks. They
further stated that direct access to the payment system could reduce
settlement risk by shortening settlement chains and lowering reliance
on intermediaries that can amplify the impacts of operational outages
or liquidity constraints during stress events. However, other
commenters cautioned that providing direct access to institutions not
subject to the same regulatory regime as federally insured depository
institutions could result in heightened risks related to operational
resiliency, financial stability, and Bank Secrecy Act (BSA)/Anti Money
Laundering (AML) compliance.
Further, a few commenters expressed concerns that the design of the
Payment Account would increase risks to the payment system as
interconnectedness between Payment Account holders may create systemic
risk and suggested setting exposure limits for single counterparties.
Many of these commenters provided recommendations for additional
requirements or terms to which Payment Account holders could be
subject, such as submitting stress-testing plans and back-up liquidity
arrangements, and suggested that strong supervision, consistent
application across Reserve Banks, and the ability to revoke access if
risks emerge would be essential safeguards. Similarly, other commenters
emphasized the importance of explicit and enforceable expectations for
operational resilience, governance, cyber maturity, and compliance to
ensure that the Payment Account does not weaken the safety, soundness,
or integrity of the payments system.
Lastly, commenters expressed divergent views on liquidity and
capital requirements for Payment Account holders. Some argued that
Payment Account holders should be subject to additional liquidity and
capital controls to manage risk, particularly given their potential
lack of operational maturity or limited experience with supervisory
oversight. Conversely, other commenters recommended that the Federal
Reserve tailor such controls to individual institutions and avoid
imposing onerous requirements that may impede adoption.
2. Board Response
The Board recognizes commenters' concerns regarding potential risks
associated with the Payment Account design. The Board acknowledges that
providing direct access to financial services requires careful
attention to the risk profile of requesting institutions and the
potential for systemic implications.
The Board does not believe the Payment Account would increase
systemic risk. The Board believes that the Payment Account's design
would result in an appropriately low residual risk profile. In
particular, the core design features of the Payment Account--including
payment service limitations, no access to Reserve Bank intraday credit,
the Closing Balance Limit, no interest on balances, and no access to
the discount window--would generally mitigate the risks that Payment
Account holders pose to the Reserve Banks, the payment system, and
monetary policy implementation. If necessary, a Reserve Bank would
retain discretion to impose additional restrictions on the use of a
Payment Account or, if necessary, to terminate the account.
G. Payment Account Risk Associated With Illicit Finance
1. Summary of Comments
Just over half of the comment letters discussed risks related to
BSA, AML, and countering the financing of terrorism (CFT) and related
illicit finance issues. While nearly all of these commenters
acknowledged the importance of the Board considering illicit finance
risk in the context of the Payment Account, and for Payment Account
holders to have rigorous BSA/AML/CFT programs, there was significant
divergence among commenters in the criteria and conditions Reserve
Banks should apply when evaluating illicit finance risks under
Principle 5 of the Account Access Guidelines. Several commenters
supported Reserve Banks relying on institutions' primary state or
federal supervisors to supervise and assess an institution's BSA/AML/
CFT compliance, while other commenters supported Reserve Banks having a
stronger BSA/AML/CFT supervisory role over, or imposing additional BSA/
AML/CFT conditions on, Payment Account holders.
Among the commenters supporting a stronger role for the Federal
Reserve, some argued that the Reserve Banks should ensure that Payment
Account holders are compliant with BSA/AML and Office of Foreign Assets
Control (OFAC) requirements through periodic examinations. Others
proposed that Reserve Banks impose additional controls, such as
prohibiting nested transactions or imposing transaction limits until a
Payment Account holder demonstrates compliance over an extended period.
Among the commenters who supported the Federal Reserve relying on the
primary federal or state supervisor, many noted that state-chartered
institutions are required to maintain BSA/AML compliance programs and
argued that the Federal
[[Page 30634]]
Reserve should use compliance with these program requirements as
evidence of the adequacy of an institution's BSA/AML program to avoid
creating duplicative compliance regimes. Some commenters also raised
the concern that by imposing additional conditions or controls, the
Federal Reserve might hold Payment Account holders to higher standards
relative to traditional institutions to which the Federal Reserve has
historically provided accounts and services through Master Accounts.
Other commenters raised concerns that newly chartered institutions may
not have history or experience with effective BSA/AML/CFT compliance
programs.
A few commenters discussed how new technologies either present new
types of illicit finance risk, including, for example, in the form of
agentic artificial intelligence (AI) in payments, or new opportunities
for combatting these risks, including, for example, through the use of
blockchain technology or AI.
2. Board Response
The Board agrees that all account holders, including any Payment
Account holders, must mitigate illicit activity risks of their account
access by complying with federal laws and regulations enacted to combat
money laundering and the financing of terrorism. In practice, these
means Reserve Bank accountholders must demonstrate their management of
the illicit finance risks of their account access by having robust BSA/
AML and OFAC compliance programs that meet the relevant regulatory and
supervisory requirements, including those administered by the Financial
Crimes Enforcement Network (FinCEN) and OFAC.
Most institutions that are legally eligible to maintain an account,
including a Payment Account, with a Reserve Bank meet the definition of
a ``bank'' for purposes of the BSA and, as a result, are required to
maintain a comprehensive AML program that includes customer due
diligence, transaction monitoring, and suspicious activity
reporting.\23\ All U.S. persons, including all institutions eligible to
maintain an account with a Reserve Bank, are required to comply with
OFAC sanctions requirements. Institutions eligible to maintain an
account with a Reserve Bank are also generally subject to examination
by a primary state or federal supervisor to assess and determine their
BSA/AML and OFAC compliance.
---------------------------------------------------------------------------
\23\ If an institution requesting a Payment Account is not a
``bank'' under the BSA, a Reserve Bank should conduct a more
extensive review of the institution's illicit finance risk. The
Board is considering whether it would be appropriate to review
access requests from institutions that do not meet the definition of
a ``bank'' under the BSA under the full tiered review framework that
applies to Master Account requests. These institutions may raise
novel risks under the Account Access Guidelines, including but not
limited to illicit finance risk.
---------------------------------------------------------------------------
The Board does not believe that a Payment Account would present
materially different illicit finance risk than a Master Account because
both accounts can be used to clear and settle payments. As discussed in
Section III.A.3, however, the Board is proposing to include a term for
the Payment Account that confirms and reinforces that Board's
expectation that the Payment Account holder demonstrates that it
effectively mitigates the illicit finance risk of its account access.
This term would clarify that Reserve Banks may implement illicit
finance risk account terms or mitigating controls for Payment Accounts
just as they may with Master Accounts.
Under Principle 5 of the Account Access Guidelines, Reserve Banks
are expected to evaluate whether provision of an account and services
to an institution would create undue risk by facilitating activities
such as money laundering, terrorism financing, fraud, cybercrimes,
economic or trade sanctions violations, or other illicit activity
(illicit finance). The Guidelines note that the Reserve Bank should
incorporate into its risk assessment, to the extent possible, the
assessments of an institution by its state and/or federal supervisors.
In addition, the Guidelines indicate that the Reserve Bank should
confirm that the institution has compliance program(s) consisting of
the BSA/AML components set out in the Guidelines and in relevant
regulations and are designed to support compliance with OFAC
regulations.
In implementing the Guidelines, the Reserve Banks have identified
several account terms or risk mitigating controls available to Reserve
Banks to mitigate illicit finance risk. For example, during its review
of an access request, a Reserve Bank may, in its discretion, require
information to augment that received from supervisory assessments of an
institution's BSA/AML and OFAC compliance programs or otherwise
identified by the Reserve Bank during its review. Additionally, a
Reserve Bank may determine, in its discretion, that terms or risk
mitigating controls are necessary to reduce the illicit finance risk
associated with the provision of an account and services to an
institution. A Reserve Bank may implement such requirements for a
Master Account and would be able to do so for a Payment Account as
well. Section III.A.3 provides examples of these informational
requests, terms, and risk mitigating controls.
H. Payment Account Request Process
1. Summary of Comments
Commenters expressed divergent opinions on whether the 90-day
review timeline for Payment Account access requests would provide
adequate time for the Reserve Banks to assess risks. Views generally
fell into three categories: (1) commenters who viewed the timeline as a
significant improvement that would support innovation; (2) commenters
who expressed concern that the timeline was insufficient for thorough
risk assessment; and (3) commenters who supported the timeline in
principle but raised concerns about consistent enforcement and
implementation.
Many commenters viewed the 90-day review timeline as a significant
improvement over the time it sometimes takes Reserve Banks to review
requests for Master Accounts, a process which some commenters described
as opaque. These commenters noted that the timeline would materially
shorten review times and lower the cost of entry and uncertainty for
eligible institutions seeking an account and services. One commenter
characterized the timeline as a catalyst for innovation.
Conversely, some commenters expressed concern that 90 days would
provide insufficient time for proper risk assessment. One commenter
argued that reviews must be risk-based and take as long as necessary.
Another commenter questioned whether the sufficiency and effectiveness
of BSA/AML programs could be properly assessed within an expedited 90-
day review period.
Several commenters questioned whether the Reserve Banks would
adhere to the 90-day timeline in a consistent way. These commenters
suggested that without additional clarity on eligibility expectations
and procedural standards, the Payment Account may not be successful.
One commenter noted that the absence of procedural standards has the
potential to render the 90-day timeline ineffective because the RFI did
not define what constitutes a complete account request and would allow
for extensions. Another commenter cautioned that the possibility of
open-ended extensions could create uncertainty that functions as a de
facto denial and recommended that extensions be strictly time-limited
and permitted only in exceptional circumstances.
[[Page 30635]]
Several commenters discussed how, if at all, a Reserve Bank's
provision of a Payment Account should influence the Reserve Bank's
potential future provision of a Master Account to the Payment Account
holder. A few commenters argued for a clearly defined pathway from a
Payment Account to Master Account; some advocated for a defined on-ramp
from one to the other. Conversely, other commenters argued against such
a pathway and stated Payment Account holders should undergo the same
level of review as Master Account requests do under the Guidelines.
To address these concerns, commenters made several recommendations.
One commenter advocated for clearly defined timeline triggers for the
90-day review, including transparent pause and clock-stop rules to
enhance consistency and transparency. Another commenter acknowledged
that limited extensions may be appropriate for complex cases but
maintained that reviews should generally conclude within three to six
months. Some commenters suggested that the Board publish a standardized
request checklist and release periodic summary statistics on approvals,
denials, and typical timelines.\24\
---------------------------------------------------------------------------
\24\ The Board publishes a list of institutions that have
requested access to Reserve Bank accounts and financial services
after December 23, 2022 (or that had submitted an access request
that was pending on December 23, 2022), along with the status of
these requests. See Federal Reserve Board, Master Account and
Services Database, <a href="https://www.federalreserve.gov/paymentsystems/master-account-and-services-database-about.htm">https://www.federalreserve.gov/paymentsystems/master-account-and-services-database-about.htm</a>.
---------------------------------------------------------------------------
One commenter suggested that the Board establish a specific
timeline for Master Account access requests similar to the 90-day
timeline proposed for Payment Accounts, arguing that such a timeline
would provide greater transparency and reduce uncertainty in the
application process.
2. Board Response
The Board believes the terms of the Payment Account would create a
lower residual risk profile relative to a Master Account and thereby
support the proposed 90-day review timeframe. Having a clear expected
timeframe would create a transparent process and would help foster
consistent evaluation of Payment Account access requests across all
twelve Reserve Banks.
With respect to illicit finance risk, the Board does not have
reasonable evidence to support the assertion that Payment Accounts
would pose unique illicit finance risk. The Board believes that the
Reserve Banks' experience reviewing access requests would facilitate
adequate reviews of Payment Account requests in the proposed timeframe.
In addition, the Board has added a term to the Payment Account to
provide institutions greater clarity on what information a Reserve Bank
may request an institution provide in order to support the Reserve
Bank's analysis of illicit finance risk.\25\ The Board acknowledges
concerns about extensions and consistent enforcement of the timeline.
Consistent with the RFI, the Board is proposing that if a Reserve Bank
requires additional time beyond the 90-day period to complete its
review, the Reserve Bank would be expected to consult with the Board
before extending the review period. As further explained in Section
III.C.4, the Board believes the consultation process provides an
appropriate mechanism for ensuring consistent application of the
proposed review timelines. Further, the Board, in conducting its
general supervision of the Reserve Banks, would monitor the extent to
which Reserve Banks were processing Payment Account requests in
accordance with the Guidelines.
---------------------------------------------------------------------------
\25\ See infra Section II. G 2 and supra Section III.A.3.
---------------------------------------------------------------------------
In response to comments suggesting that the Payment Account be
designed as an on- ramp to a Master Account, the Board believes that
the provision of a Payment Account should not be an indication of any
future provision of a Master Account. A request for a Master Account by
a Payment Account holder would require a full review under the Account
Access Guidelines. Although the Reserve Bank would have reviewed the
Payment Account holder's request for a Payment Account under the
Guidelines, the Reserve Bank would have done so in light of the Payment
Account's standard terms, which substantially limit the range of risks
posed. However, the Board acknowledges that a Reserve Bank's experience
with a Payment Account holder could inform its review of a request for
a Master Account.
In response to a comment about providing timelines for Master
Account requests, the Board proposes that requests from Tier 1
institutions be reviewed generally within 45 calendar days, as
discussed further in Section III.C.4.
I. Other Comments
1. Summary of Comments
Several trade associations requested the Board extend the RFI's 45-
day comment period for an additional 30 days. The Board received one
comment requesting that the Board deny the trade associations'
extension request.
Several commenters discussed the need for consumer and privacy
protections for Payment Account holders that facilitate retail
transactions. These commenters expressed differing views on the
appropriate level of protection, with some advocating for additional
safeguards and others recommending that such protections be tailored to
the payment activity or commensurate with the Payment Account holder's
overall size or risk profile.
Additionally, one commenter mentioned structural inequities between
traditional banks and non-traditional banks, noting that Payment
Account holders would gain direct access to the Federal Reserve payment
infrastructure without incurring the regulatory costs and investments
that traditional banks have made, undermining competitive fairness.
Another commenter suggested that the proposal could dilute the payments
franchise of insured institutions with Master Accounts and that mid-
size and community banks would face acute competitive pressure.
2. Board Response
The Board believes the 45-day comment period was reasonable and
sufficient for commenters to review the RFI and provide meaningful
input. The Board also believes it is appropriate to issue this notice,
which provides more information on the proposal, so that the public has
sufficient detail to consider and comment upon the proposed Payment
Account.
With respect to other commenters' focus on consumer and privacy
protections, the Board expects all accountholders to comply with
applicable laws and regulations governing consumer protection.
III. Proposal
A. Proposal To Offer a Payment Account
The Board is proposing to set forth standard and transparent terms
for the provision of Payment Accounts by Reserve Banks. The Board is
proposing to create a Payment Account to support private-sector
payments innovation while prudently managing the risks identified in
the Account Access Guidelines.
The Board encourages Reserve Banks to pause decisions on access
requests from Tier 3 institutions until the Board has completed its
policy development process on the Payment Account
[[Page 30636]]
proposal.\26\ A pause will allow time for the public to provide input
on the proposal, and it will give the Federal Reserve the opportunity
to consider this input. A pause also will ensure greater transparency,
consistency, and certainty for institutions that are seeking access
during this period. The Board requests that Reserve Banks implement
this temporary pause until the Board has completed its policy
development process with respect to the Payment Account.\27\
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\26\ The Board understands that there may be cases where
extraordinary or unusual circumstances exist that support a Reserve
Bank making a decision before the Board has completed its policy
development process. The Board requests that the Reserve Bank
consult with the Board in such cases.
\27\ The Board currently expects the pause to end on or before
December 31, 2026.
---------------------------------------------------------------------------
While eligible institutions from any tier may request a Payment
Account, the Board anticipates that most Payment Account requesters
would be Tier 2 or Tier 3 institutions. As explained above, access to
an account and services by non-federally insured institutions (Tiers 2
and 3) presents greater and more heterogenous risks than federally
insured institutions (Tier 1).\28\ Accordingly, the Board believes it
is necessary that the Payment Account be designed with ex ante controls
and standard terms to mitigate these risks.
---------------------------------------------------------------------------
\28\ See supra Section I.A for a discussion of the different
risks reflected in the tiering framework.
---------------------------------------------------------------------------
A Payment Account, as the Board proposes to define it, would be a
special-purpose account available to institutions that are legally
eligible to maintain accounts with a Reserve Bank (regardless of their
tier) for the purpose of clearing and settling payments activity for
the institution and its customers.\29\ Payment Accounts would be a new,
optional way for institutions to request access to accounts and
services. As further described in this notice, the Payment Account's
standard terms would reduce its residual risk profile facilitating a
more streamlined review relative to the review of an access request
from the same institution. Institutions seeking to access intraday
credit or a broader set of services; to act as an OC 1 Correspondent or
OC 1 Respondent (defined in Section III.A.2); or to maintain larger
closing balances would retain the option of requesting a Master Account
or to be an OC 1 Respondent.\30\
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\29\ But see Section III.A.2.
\30\ See Section II.A.2 for further details on OC 1 Respondents.
---------------------------------------------------------------------------
The Payment Account's terms would be set out in the Account Access
Guidelines, the PSR Policy, the Board's Regulation A (12 CFR part 201),
and the Board's Regulation D (12 CFR part 204). For convenience, the
Board has included a summary of all the proposed Payment Account terms
below:
----------------------------------------------------------------------------------------------------------------
Topic Term Implementing document
----------------------------------------------------------------------------------------------------------------
Eligibility \31\..................... Institutions that are legally eligible under the Federal law.
Federal Reserve Act or other federal statute to
maintain an account at a Reserve Bank and
receive services.
Closing Balances \32\................ Closing balance limits would be set by the PSR Policy.
Reserve Bank for an individual Payment Account
based on expected payment activity in the
account, not to exceed $1 billion. There would
be no limit on intraday balances in a Payment
Account.
Intraday Credit \33\................. Payment Accounts would not be permitted to PSR Policy
access intraday credit. Transactions that would
cause an overdraft would be automatically
rejected.
Available Services \34\.............. Only those services for which the Reserve Banks PSR Policy.
can automatically reject transactions that
would cause an overdraft would be permitted to
settle in a Payment Account (i.e., currently,
the Fedwire Funds Service, the FedNow Service,
NSS, and the Fedwire Securities Service for
securities transfers free of payment).
Correspondent Prohibition \35\....... A Payment Account holder may not act as a PSR Policy.
``Correspondent'' as defined in the Reserve
Bank Operating Circular No. 1 (OC 1) by
permitting other legally eligible institutions
to settle their services activity directly in
the Payment Account.
Respondent Prohibition \36\.......... A Payment Account holder may not act as a PSR Policy.
``Respondent'' as defined by OC 1 by settling
its services activity directly in another
institution's Master Account.
Illicit Finance Risk \37\............ A Payment Account holder may be required to PSR Policy.
provide (ad hoc or periodically) information to
demonstrate its compliance with BSA/AML and
OFAC requirements \38\.
Discount Window \39\................. Payment Account holders would not be permitted Regulation A.
to access credit from the discount window.
Interest on Balances \40\............ Balances in a Payment Account would not receive Regulation D.
interest.
Excess Balance Account (EBA) A Payment Account holder would not be permitted Regulation D.
Participation \41\. to participate in an EBA.
Review Timeline \42\................. Review of Payment Account requests would Account Access
generally be completed within 90 calendar days Guidelines.
of receiving all requested documents.
----------------------------------------------------------------------------------------------------------------
Under the proposal, Payment Accounts would have a consistent set of
terms to mitigate the risks posed to the Reserve Banks (Principle 2 of
the Guidelines), the payment system (Principle 3 of the Guidelines),
financial stability (Principle 4 of the Guidelines), and the
implementation of monetary policy (Principle 6 of the Guidelines). A
Reserve Bank might also require a Payment Account holder to submit
information to demonstrate its compliance with BSA/AML and OFAC
requirements, which would mitigate illicit finance risk (Principle 5 of
the
[[Page 30637]]
Guidelines). Beyond the Payment Account's specified terms, the Reserve
Banks would retain discretion to impose additional restrictions on a
Payment Account, or to remove access to service or close an existing
account, on a case-by-case basis, in the same manner and to the same
extent as they can with Master Accounts.
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\31\ Refer to the Account Access Guidelines, Section 1,
Principle 1, see infra Section VIII.
\32\ Refer to proposed Section IV.B.2.a of the PSR Policy, see
infra Section VII.
\33\ Refer to proposed Sections II.F.5 and IV.B.2.b of the PSR
Policy, see infra Section VII.
\34\ Refer to proposed Section IV.B.2.d of the PSR Policy, see
infra Section VII.
\35\ Refer to proposed Section IV.B.2.e of the PSR Policy, see
infra Section VII.
\36\ Id.
\37\ Refer to proposed Section IV.B.2.f of the PSR Policy, see
infra Section VII.
\38\ A Reserve Bank may require similar information when
reviewing a Master Account request.
\39\ Refer to proposed Regulation A amendment (proposed 12 CFR
201.3), see Regulation A Notice.
\40\ Refer to proposed Regulation D amendment (proposed 12 CFR
204.10(b)(3)-(4)), see Regulation D Notice.
\41\ Id. An EBA is a limited-purpose account at a Reserve Bank
established for one or more institutions (participants) that are
eligible to earn interest on balances held at the Reserve Banks.
EBAs are managed by agents that hold Master Accounts. Balances
maintained in EBAs may not be used for general payments or other
activities, but participants may ask their agents to transfer EBA
balances to another account (such as that of a correspondent) for
purposes of making payments. There is no limit on balances that can
be maintained in an EBA.
\42\ Refer to the Account Access Guidelines, proposed Section 4,
see infra Section VIII.
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Under the proposal, requests by Tier 2 and Tier 3 institutions for
Payment Accounts, with their standard terms and resulting lower
residual risk profile, would typically be reviewed by Reserve Banks in
a shorter period than Master Account requests from the same
institution. However, to the extent a Reserve Bank identifies any risk
that it cannot evaluate in the proposed 90-day review period, the
Reserve Bank would consult with the Board about extending the review
period.\43\ While the Board believes that the Payment Account terms
permit a streamlined review relative to a request for a Master Account
from the same institution, Reserve Banks would still be expected to use
the Account Access Guidelines, including its tiered review framework,
to review all access requests, regardless of account type.
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\43\ See infra Section III.C.3.
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Payment Accounts and Master Accounts would be distinct Reserve Bank
account types. As described further below, Payment Accounts would have
a standard set of risk-mitigating terms designed to create a lower
residual risk profile. Conversely, Master Accounts do not have a
standard set of risk-mitigating terms (although Reserve Banks have
discretion to impose terms on Master Accounts). Accordingly, the Board
is proposing to define Master Accounts to clarify that they are
separate from Payment Accounts. The proposed definition simply
memorializes the existing characteristics of a Master Account.
Institutions would not be permitted to have both a Payment Account and
a Master Account simultaneously, which is consistent with existing
Reserve Bank practice.\44\
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\44\ See Reserve Banks' Operating Circular 1 (Accounts), Sec.
2.3, available at <a href="http://FRBservices.org">FRBservices.org</a>.
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A Payment Account holder that wants a Master Account would have to
submit a new access request to its Reserve Bank, which would review the
request in accordance with the Account Access Guidelines. The Board has
considered comments suggesting that a Payment Account should be an on-
ramp to a Master Account.\45\ Although the Reserve Bank would have
reviewed the Payment Account holder's request for a Payment Account
under the Guidelines, it would have done so in light of the Payment
Account's unique terms, which substantially limit the range of risks
posed by the Payment Account. Further, since Reserve Banks have the
discretion to determine whether to grant a master account, as well as
to tailor the terms of a Master Account to an institution's risk
profile, conducting a full review according to the Account Access
Guidelines would be necessary to ensure appropriate calibration of
those terms. Holding a Payment Account would not indicate likely
approval of a Master Account request, and a Reserve Bank would maintain
its discretion to impose terms on the provision of any Master Account.
Nevertheless, the Board recognizes that the Reserve Bank may be
informed by its review of a Payment Account holder's request for a
Payment Account and subsequent experience with the Payment Account
holder when reviewing its request for a Master Account.
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\45\ See supra Section II.I.2.
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1. Terms To Mitigate Risk to the Reserve Banks
The Board is proposing several terms for Payment Accounts to manage
risks to the Reserve Banks (and by extension to the American
public).\46\
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\46\ The FRA requires the Reserve Banks to remit excess earnings
to the U.S. Treasury after providing for operating costs, payments
of dividends, and an amount necessary to maintain surplus. 12 U.S.C.
289(a)(3).
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First, Payment Account holders would not be permitted access to
intraday credit under the Board's proposed revisions to Part II of the
PSR Policy, which governs the amount of intraday credit, if any, that
an institution may receive from a Reserve Bank.\47\ In general, the
Reserve Banks, at their discretion, may provide intraday credit to
institutions with accounts at Reserve Banks to foster the smooth
operation of the payment system.\48\ The Board, however, believes it
would be imprudent for the Reserve Banks to extend intraday credit to
Payment Account holders.
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\47\ The Board, in a separate Federal Register notice, is also
proposing to amend Regulation A to prohibit Reserve Banks from
providing Payment Account holders with overnight credit through the
Discount Window. Regulation A Notice.
\48\ Under the PSR Policy, certain institutions are not eligible
for intraday credit. These include Edge and Agreement Corporations,
bankers' banks that are not subject to reserve requirements,
limited-purpose trust companies, government-sponsored enterprises,
and certain international organizations. See section II.F of the PSR
Policy (Special situations).
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As described in the PSR Policy, an institution's eligibility for
either uncollateralized or collateralized intraday credit (i.e., a
positive net debit cap) depends, in part, on the institution meeting
certain creditworthiness standards.\49\ These eligibility requirements
reflect the fact that all recipients of intraday credit, including
collateralized intraday credit, pose some credit risk to the Reserve
Bank.\50\ The Board has intentionally designed the Payment Account to
minimize its operational complexity and risk profile to provide direct
access to a basic account and services to a broader population of
institutions with novel and diverse business models and risk profiles
in a timely manner. Prohibiting access to intraday credit is central to
the Board achieving this goal.
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\49\ See section II.D.1 of the PSR Policy (Eligibility).
Creditworthiness is determined by an institution's supervisory
ratings and, as applicable, its Prompt Corrective Act designation or
Foreign Banking Organization (FBO) PSR capital category.
\50\ See also section II.F.5 of the PSR Policy (stating that
institutions in weak financial condition should refrain from
incurring daylight overdrafts).
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Several additional considerations support making intraday credit
inaccessible to Payment Account holders. For one, institutions seeking
Payment Accounts are unlikely to be subject to the resolution regimes
that accompany federal deposit insurance. Resolution of federally
insured depository institutions follows clear, consistent, and well-
established rules for paying Reserve Banks and other creditors of a
failed institution.\51\ Insolvency regimes applicable to uninsured
Payment Account holders may be new or may involve the application of
rarely invoked state and federal laws. Moreover, uninsured Payment
Account holders likely would not be subject to a framework of
prudential supervision and regulation that is as robust as that applied
to federally insured depository institutions. Finally, data available
to Reserve Banks may vary across Payment Account holders. Current
credit risk monitoring at Reserve Banks relies mostly on supervisory
information received from within the Federal Reserve System or from
other federal regulators, and similar information on the full range of
potential Payment Account holders may not be readily available.
Consideration of the risks associated with providing credit to
institutions subject to alternative regulatory and resolution regimes
would require a level of analysis and due diligence that is likely
infeasible in the
[[Page 30638]]
expedited review period for Payment Account requests.
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\51\ While federally insured depository institutions may, in
theory, maintain Payment Accounts, given their status as Tier 1
institutions and the proposed Payment Account controls, the Board
does not anticipate that federally insured institutions will seek
Payment Accounts.
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The Board has considered the comments that addressed the RFI's
proposal not to permit Payment Accounts intraday credit access. For the
reasons explained above and in Section II.E.2, the Board is proposing
that Payment Accounts would not have access to intraday credit, either
uncollateralized or collateralized. As such, an institution would need
to prefund all transactions settling in its Payment Account. If an
institution desires access to intraday credit, the institution should
request a Master Account.
Second, and consistent with the lack of intraday credit access, the
Reserve Banks would only permit Payment Account holders to access, at
most, services for which the Reserve Banks can automatically reject
transactions that would cause an overdraft. Currently, the Reserve
Banks can implement credit-limit monitoring controls to prevent
overdrafts at a service-line level for the Fedwire Funds Service, the
FedNow Service, and the National Settlement Service. In addition, the
Reserve Banks can prevent overdrafts caused by securities transfers
over the Fedwire Securities Service by limiting Payment Account holders
to securities transfers free of payment.\52\ The Board acknowledges the
comments suggesting that Payment Accounts be provided with access to
FedACH. As discussed in detail in Section II.B.2, the Board does not
believe there is a reasonable way to allow Payment Accounts to access
FedACH and effectively mitigate credit risk to the Reserve Banks
without disrupting the ACH network and potentially undermining its
efficiency and effectiveness. If the Reserve Banks were to change the
controls that apply to their payment systems such that it becomes
possible to automatically reject additional types of transactions that
would cause an overdraft, the Board might reconsider the suite of
services to which Payment Accounts are given access, but the Board
would expect to evaluate any potential expansion of Payment Account
services through public comment.
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\52\ Free of payment access to the Fedwire Securities Service
means that a participant may only use the service to make securities
transfers that will not result in a debit or credit to a Master
Account other than a transaction fee.
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In addition to credit risk, the Account Access Guidelines include
an assessment of a wide range of risks to the Reserve Banks that can
arise from the provision of an account and services, such as
operational and cyber risks. Today, Reserve Banks mitigate cyber and
operational risk through strong risk management controls and processes,
including a security and resiliency assurance program that requires
institutions to attest to their compliance with Reserve Bank security
requirements.\53\ Payment Account holders would be subject to the same
controls, processes, and attestation requirement. Given the Payment
Account's proposed simplified operational and risk profile, the Board
believes Reserve Banks generally should be able to assess requesters'
cyber and operational risks within the proposed 90-day review period.
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\53\ Under the FedLine Solutions Security and Resiliency
Assurance Program each organization, at least annually, must conduct
a self-assessment of its compliance with the FedLine Security
Requirements and attest to having conducted such self-assessment, as
outlined in Appendix A, Section 3 of Operating Circular 5. These
measures are intended to help protect against unauthorized access to
FedLine services or transactional data.
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2. Terms To Mitigate Risk to the Payment System
The Board is proposing a usage restriction for Payment Accounts to
reduce their risk to the payment system. The Board anticipates that a
Payment Account holder, like a Master Account holder, would use its
account to clear and settle its depositors' and other customers'
payment activity. However, the Reserve Banks' OC 1 also permits a
contractually defined Correspondent-Respondent relationship in which an
account holder may agree to act as a Correspondent (OC 1 Correspondent)
and allow its Master Account to be used to settle certain transactions
and service fees for a Respondent (OC 1 Respondent).\54\ This OC 1
Correspondent-Respondent relationship creates a materially different
relationship between the Reserve Bank, the OC 1 Correspondent, and the
OC 1 Respondent from a traditional relationship in which a financial
institution processes payments on behalf of its depositors and
customers. In particular, in an OC 1 Correspondent-Respondent
relationship, an OC 1 Respondent can submit payment instructions
directly to a Federal Reserve Bank (rather than to its OC 1
Correspondent), and the debits and credits associated with those
payments settle in the Master Account of the OC 1 Correspondent. The
Board proposes that Payment Account holders not be permitted to act as
either OC 1 Correspondents or OC 1 Respondents because these
relationships pose unique and complex risks.
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\54\ The Reserve Banks' Operating Circulars are available at
<a href="http://FRBservices.org">FRBservices.org</a>.
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Under these arrangements, multiple OC 1 Respondents can settle
debits and credits associated with Federal Reserve payments in a single
OC 1 Correspondent's account. Assessing the risks associated with
multiple institutions settling their transactions in the Master Account
of a single OC 1 Correspondent involves detailed due diligence.
Additionally, if an OC 1 Correspondent fails or decides to abruptly
terminate its relationship with an OC 1 Respondent, the OC 1
Respondent's continued access to services could be affected and,
particularly when the OC 1 Respondent is accessing FedACH as an OC 1
Respondent, could cause challenges for other participants in the
payment system.
The Board believes acting as an OC 1 Correspondent should be
subject to the full review associated with the provision of a Master
Account. Similarly, the Board is proposing that Payment Account holders
would not be permitted to act as OC 1 Respondents. The Board
reiterates, however, that this would not prevent the Payment Account
holder from clearing and settling activity associated with its
customers' payments activity in the Payment Account subject to the
Payment Account's terms.
The Board considered whether Payment Account holders should be
permitted to be OC 1 Respondents. The Board recognizes that OC 1
Respondent relationships may pose lower residual risks, for example
lower credit risk to the Reserve Banks, which may result in a more
streamlined review than a Master Account request from the same
institution under the Guidelines. OC 1 Respondent relationships only
permit access to a subset of services, although FedACH is among those
included, while Master Account holders may, if approved by the Reserve
Bank, potentially access all services and potentially access intraday
credit.\55\ Given the potential operational complexity that could arise
from an institution maintaining OC 1 Respondent status, which would be
subject to a one type of review and ongoing monitoring while
simultaneously holding a Payment Account, which would subject to a
different type of review and ongoing monitoring, the Board is proposing
that Payment Account holders not be permitted to act as OC 1
Respondents. The Board also does not anticipate that Payment Account
holders would be
[[Page 30639]]
interested in being OC 1 Respondents when they could instead request a
Master Account.
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\55\ See also Section III.A.1.
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Therefore, given the Board's goals of creating a Payment Account
with a relatively simple operational and risk profile, the request for
which is subject to a comparatively streamlined review to that of a
request for a Master Account from the same institution, the Board does
not believe the risks associated with a Payment Account holder acting
as either OC 1 Correspondent or OC 1 Respondent can be sufficiently
mitigated. Accordingly, the proposal would not permit Payment Account
holders to act as either OC1 Correspondents or OC 1 Respondents as
those terms are defined in OC1.
The Account Access Guidelines' consideration of risks to the
payment system includes cyber and operational risks among the payment
risk considerations. As previously discussed in Section III.A.1, given
the Payment Account's proposed simplified operational and risk profile
and the reliance on the assessments of requesters' primary supervisors,
the Board believes Reserve Banks can assess requesters' cyber and
operational risks at that time within the proposed 90-day review
period.
3. Terms To Mitigate Illicit Finance Risk
Under the Account Access Guidelines, provision of a Payment Account
should not create undue risk to the overall economy by facilitating
illicit finance. In consideration of this principle and the comments
received on the RFI, the Board is proposing to set out a non-exhaustive
list of terms available to a Reserve Bank, at its discretion, to
mitigate illicit finance risk associated with the provision of a
particular Payment Account. If requested by the Reserve Bank, a Payment
Account holder would be required to provide information related to its
BSA/AML and OFAC compliance. This information would assist the Reserve
Bank in its initial or ongoing assessment of the illicit finance risk
associated with provision of the Payment Account. The Reserve Bank
could require this additional information on an ad hoc or periodic
basis depending on its individualized assessment of the institution.
These informational requirements could include:
<bullet> Providing the Reserve Bank with an independent, third-
party assessment of the Payment Account holder's BSA/AML and OFAC
compliance programs;
<bullet> Providing the Reserve Bank with an attestation regarding
the Payment Account holder's compliance with BSA/AML and OFAC laws and
regulations;
<bullet> Providing the Reserve Bank with copies of audit reports of
the Payment Account holder's BSA/AML or OFAC compliance programs;
<bullet> Meeting regularly with the Reserve Bank to discuss
noteworthy or material BSA/AML or OFAC compliance issues;
<bullet> Notifying the Reserve Bank of any BSA/AML or OFAC
enforcement action taken against the Payment Account holder by a
regulatory or supervisory authority; or
<bullet> Notifying the Reserve Bank of any material deficiencies
identified regarding the Payment Account holder's BSA/AML or OFAC
compliance programs.\56\
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\56\ Reserve Banks may request independent assessments,
attestations, and audit reports on an ad hoc basis or on an ongoing
basis at a frequency determined by the Reserve Bank.
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These illicit finance terms are consistent with those the Reserve
Banks already use to mitigate illicit finance risks associated with
Master Accounts. The Board believes potential Payment Account holders,
in particular, would benefit from the transparency provided by setting
out potential illicit finance terms that a Reserve Bank might impose.
The Board anticipates that Payment Account requesters are more likely
to be subject to weaker or more divergent supervisory regimes and are
more likely to engage in new or emerging business lines. Accordingly,
Payment Account requesters could pose greater and more heterogenous
risk than federally insured institutions. The above non-exhaustive list
of potential terms would inform potential Payment Account holders of
the illicit finance mitigants that Reserve Banks may apply to Payment
Accounts.\57\
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\57\ The Board reiterates that Reserve Banks retain their
discretion to implement illicit finance controls for Master Accounts
and OC 1 Respondents.
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4. Terms To Mitigate Risk to Financial Stability and Monetary Policy
Implementation
The Board is proposing that the Payment Account would be subject to
a Closing Balance Limit established by the Reserve Bank pursuant to the
new Part IV of the PSR Policy proposed by this notice. Under the
framework set out in this proposal, an individual Payment Account's
Closing Balance Limit, not to exceed $1 billion, would be based on the
Reserve Bank's analysis of the Payment Account holder's expected
payment flows, in particular at the beginning of the Federal Reserve's
business day, and take into consideration periods of time when external
sources of liquidity may be limited, such as during weekends and
holidays. The Payment Account holder would be required by the Reserve
Bank to achieve a closing account balance at or below its Closing
Balance Limit by the Federal Reserve's close of business, as defined in
Part II of the PSR Policy, and maintain such balance until the open of
the Federal Reserve's next business day.\58\ The proposal does not
contemplate that Payment Account balances would be capped during the
business day. The Board believes an intraday balance cap would limit a
Payment Account's utility for clearing and settling payments, which is
its intended purpose.
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\58\ The business day of Federal Reserve Financial Services is
defined in Part II of the PSR Policy. It is the 24-hour period that
begins immediately after the regularly-scheduled close of business
of the Fedwire Funds Service (on days when the Fedwire Funds Service
is open) and the FedNow Service on all other days, including
weekends and holidays (which, in both cases, is generally 7:00 p.m.
ET). For the purposes of the Closing Balance Limit, the open of the
Federal Reserve business day would be the open of the FedNow Service
Funds Transfer Business Day (generally 7:01 p.m. ET).
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Payment Account holders would be responsible for managing their
account to ensure compliance with their Closing Balance Limit. Under
the proposal, Reserve Banks would also implement an escalating
compliance program--moving from counseling to service restrictions, and
potentially to account closure as the incidence or severity of breaches
of the Closing Balance Limit increases.\59\
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\59\ The Board considered whether Reserve Banks should rely
solely on an account holders' internal controls to ensure balance
limit compliance or, on the other hand, if Reserve Banks should
immediately restrict access if an account holder violated its limit.
The Board believes the proposed approach strikes the right balance
of ensuring compliance while not overly penalizing an account holder
for isolated violations of its limit.
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In setting the individual Closing Balance Limit, the Reserve Bank
would analyze internal Reserve Bank data on the Payment Account
holder's payment flows, in particular at the beginning of the Federal
Reserve's business day, and take into consideration periods of time
when external sources of liquidity may be limited such as during
weekends and holidays.\60\ In addition, the Payment Account holder
could provide the Reserve Bank with forecasts and additional
information related to expected daily variations in payments and growth
in payments over time. Similarly, the Reserve Bank would
[[Page 30640]]
review each Payment Account's individual Closing Balance Limit at least
annually using Reserve Bank data and any additional information
provided by the Payment Account holder.
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\60\ A Reserve Bank would not have internal data to conduct this
analysis at account opening. The Reserve Bank, however, would have
obtained information to review the institution's Payment Account
request under the Account Access Guidelines. The Reserve Bank should
rely on this information to conduct its analysis to set the initial
Closing Balance Limit.
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Limiting the closing balances of Payment Accounts would mitigate
risks posed by Payment Accounts to the financial sector and overall
economy. The Board continues to believe that provision of an account
and services to an institution should not create undue risk to the
stability of the U.S. financial system. As discussed above, the Payment
Account is designed as a special-purpose account for clearing and
settling the Payment Account holder's payment activity and not for the
store of value. However, Payment Account holders may seek to hold
balances in excess of those needed for payments in the Payment Account.
Such a scenario could have negative financial stability implications.
In particular, during periods of market volatility or stress, and in
the absence of a Closing Balance Limit, Payment Account holders might
quickly increase Payment Account balances at a Reserve Bank, which
could rapidly drain balances from other account holders. A rapid
decrease in the amount of reserves that account holders can access
could increase money market rate volatility.
Furthermore, a Closing Balance Limit would help the Federal Reserve
maintain an overall balance sheet that is consistent with its monetary
policy implementation framework. Consistent with the Board's proposal
to amend Regulation D, the Board has considered the effects of limiting
balances in Payment Accounts on monetary policy implementation. As
discussed in greater detail in the Board's Federal Register notice
proposing to amend Regulation D to prohibit Payment Account balances
from earning interest, the contained size of Payment Accounts would
help ensure that their direct effect on Federal Reserve liabilities
would be modest and that the Federal Reserve will not have to expand
its balance sheet significantly beyond what would otherwise be needed
to efficiently and effectively implement monetary policy. However, the
indirect effect of Payment Accounts on other Federal Reserve
liabilities is difficult to assess and would depend on several factors,
including: the characteristics of the Payment Account holders (i.e.,
their balance sheet composition and business models), the form of
substitution into Payment Accounts from other means of payment (e.g.,
deposits at depository institutions, physical currency), and the amount
of sweeping activity of Payment Account holders from commercial bank
deposits to support higher intraday balances in Payment Accounts.\61\
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\61\ Regulation D Notice.
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The Board believes that paying zero interest on Payment Account
balances and establishing the Closing Balance Limit would support the
goal of limiting balances in Payment Accounts. During normal market
conditions, it is likely that a zero interest rate would incentivize
Payment Account holders to minimize Payment Account balances to the
lowest level practical to manage their payment flows. During periods of
general market stress, Payment Account holders may prefer to hold
higher account balances than during non-stress periods, regardless of
the interest rate paid on the Payment Account. In addition, there may
be periods where the Payment Account holder has idiosyncratic
incentives to hold higher balances at a Reserve Bank. In these periods,
the Closing Balance Limit would further support minimizing balances in
Payment Accounts. Together, these two Payment Account terms--paying
zero interest and the Closing Balance Limit--support the Board's goal
of minimizing the direct effects of Payment Accounts on the Federal
Reserve balance sheet to only what is needed for efficient and
effective implementation of monetary policy.
In proposing the maximum size of the Closing Balance Limit, the
Board completed a distributional analysis of closing balances data for
existing Reserve Bank accounts over the past five years and found that
$1 billion would be equal to or greater than approximately 97 percent
of account closing balances over the review period.\62\
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\62\ See Appendix I.
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In determining the appropriate maximum Closing Balance Limit, the
Board considered several options, including setting the limit to zero.
The Board believes a limit of zero would be inconsistent with a Payment
Account holder's need to prefund its payment activity for the beginning
of the next business day. For example, the FedNow Service operates 24
hours a day, and the Fedwire Funds Service currently operates 22 hours
a day. Because Payment Accounts will not have access to intraday
credit, Payment Accounts will need to maintain a sufficient balance in
the account to settle payments. The Board was also informed by the
comments it received on the RFI when determining the Closing Balance
Limit amount. For the reasons explained above and in Section II.D.2,
the Board is proposing that the Reserve Bank would take into account
the Payment Account holder's individual circumstance in setting the
individual Closing Balance Limit, up to a limit of $1 billion.
Finally, the proposal acknowledges that, in unusual circumstances,
the Reserve Banks may temporarily permit an institution to exceed its
individual Closing Balance Limit. The Reserve Bank would require the
Payment Account holder to provide a reasonable explanation for why it
is seeking to temporarily exceed its Closing Balance Limit. The Board
believes that requests to temporarily exceed the Closing Balance Limit
should be granted only rarely. For example, a Payment Account holder
could anticipate larger than normal payment outflows and request to
temporarily exceed its Closing Balance Limit to maintain the smooth
flow of payments. Given the reasons for limiting Payment Account
balances explained above, the Reserve Bank would be expected to consult
with the Board if the requested temporary Closing Balance Limit exceeds
$1 billion. The Reserve Bank would be expected to consult with the
Board if it temporarily permitted a Payment Account's closing balance
to be equal to or less than $ 1 billion (but, in excess of its Closing
Balance Limit) for two consecutive Federal Reserve business days.
B. Proposed Changes to the PSR Policy
The Board is proposing to amend the PSR Policy to provide
transparency around certain standard terms that would apply to accounts
that Reserve Banks provide to legally eligible institutions.\63\ The
Board believes that such transparency would benefit institutions as
they make decisions around business structure and potential account
usage.
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\63\ The accounts covered by the proposed Part IV are distinct
from the accounts that Reserve Banks provide (i) as depository and
fiscal agent, such as those provided for the Treasury and for
certain government-sponsored entities (12 U.S.C. 391, 393-95, 1823,
1435), (ii) to certain international organizations (22 U.S.C. 285d,
286d, 290o-3, 290i-5, 290l-3), (iii) to designated financial market
utilities (12 U.S.C. 5465), and (iv) pursuant to the Board's
Regulation N (12 CFR part 214), excess balances accounts (12 CFR
204.10(d)), and joint accounts described in the Board's Guidelines
for Evaluating Joint Account Requests.
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1. Proposal to Add Part IV to the PSR Policy
The Board believes the PSR Policy is the most appropriate existing
Federal Reserve policy to document these account terms. The PSR Policy
already covers certain activities that occur in accounts, such as risks
associated with
[[Page 30641]]
the incurrence of intraday or overnight overdrafts in Master Accounts.
More importantly, the PSR Policy focuses on risks associated with
payments, clearing, and settlement. Each of these activities is
fundamental to Reserve Bank accounts and services. The Board is
proposing to introduce a new Part IV to the PSR Policy to outline the
types of accounts that Reserve Banks provide to legally eligible
institutions, and certain standard terms that Reserve Banks apply to
these accounts.
a. General Terms and Master Account Terms
Proposed Part IV would include general terms that apply to both
Master Accounts and Payment Accounts. In recent years, some
institutions have requested that Reserve Banks recognize third-party
interests in Master Accounts. For example, some institutions have
requested accounts to hold funds in a trustee or fiduciary capacity.
Reserve Banks do not maintain Master Accounts for the benefit of anyone
other than the accountholder and, as such, do not recognize third-party
interests in Master Accounts. Accordingly, Part IV would state that
Reserve Banks do not recognize third-party interests in Master Accounts
and would not recognize them in the proposed Payment Account.
Proposed Part IV would also state that an institution may only
maintain one account except in very limited circumstances. For example,
following a merger, a bank may maintain two accounts for up to a year.
The proposal to limit institutions to one account and the exceptions to
the one-account rule are consistent with the Reserve Banks' existing
account agreement.\64\
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\64\ See Reserve Banks' Operating Circular 1 (Accounts), Sec.
2.3, available at <a href="http://FRBservices.org">FRBservices.org</a>.
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Finally, as explained in Section III.A., the Board is proposing to
clarify that Master Accounts do not have a standard set of risk-
mitigating terms (although Reserve Banks have discretion to impose
terms on Master Accounts) and are separate from Payment Accounts.
b. Payment Account Terms
As discussed in Section III.A of this notice, the Payment Account
is designed with a standard set of risk-mitigating terms that create a
lower residual risk profile to the relevant Reserve Bank, the payment
system, and to monetary policy implementation relative to a Master
Account. Proposed Part IV describes these standard Payment Account
terms. While some of the terms in Part IV of the PSR Policy would be
implemented through Regulations A and D and the Account Access
Guidelines, Part IV of the PSR Policy would include them all for
completeness and transparency. The terms discussed in proposed Part IV
relate to (a) closing balances, (b) interest on overnight balances, (c)
access to Reserve Bank credit, (d) access to Reserve Bank financial
services, (e) account usage restrictions, (f) excess balance account
participation, and (g) illicit finance risk.
In addition to serving as a resource to summarize Payment Account
terms that are implemented through other regulations or policies,
proposed Part IV would itself implement certain Payment Account terms.
First, Part IV would require Reserve Banks to establish the proposed
Closing Balance Limit as described in Section III.A.4. Part IV would
also clarify that Payment Accounts would not have limits on intraday
balances. In addition to the proposed changes to Part II discussed
below, Part IV would prohibit Payment Account holders from accessing
intraday credit (also known as daylight overdrafts). Relatedly, Part IV
would provide that a Payment Account would only have access to those
services in which the Reserve Banks can automatically reject
transactions that would cause an overdraft. The Board's proposal to
restrict a Payment Account from being an OC 1 Correspondent or OC 1
Respondent would also be implemented through Part IV.\65\ Part IV would
also outline a set of non-exhaustive, discretionary illicit finance
mitigants available to Reserve Banks. Finally, the Board would include
a provision in Part IV, similar to that for Master Accounts,
reiterating the Reserve Banks' discretion to impose other Payment
Account terms to manage the risks identified in the Guidelines.
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\65\ See infra Section III.A.2.
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2. Revisions to Part II
In addition to the standard account terms set out in the new
proposed Part IV, the Board is proposing changes to Section II.F of the
Board's PSR Policy. Specifically, the Board proposes to revise Section
F (Special Situations) of Part II (Federal Reserve Intraday Credit
Policies) of the PSR Policy to clarify that institutions granted a
Payment Account would not be eligible for intraday credit and would
only have access, at most, to those services for which the Reserve
Banks can automatically reject transactions that would cause an
overdraft.\66\ Reserve Bank systems would monitor the institution's
account balance in real time to automatically reject any transactions
that would create an overdraft.
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\66\ Currently, those services are the Fedwire Funds Service,
the FedNow Service, the National Settlement Service, and the Fedwire
Securities Service for securities transfers free of payment.
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C. Proposed Revisions to the Guidelines
Given that Reserve Banks' access decisions can have implications
for a wide array of Federal Reserve policies and objectives, the Board
continues to believe that a structured, transparent, and detailed
framework for evaluating access requests benefits the financial system
broadly. Such a framework also helps foster consistent evaluation of
access requests, from both risk and policy perspectives, across all
twelve Reserve Banks.
A Payment Account request would be evaluated using the same
principles as a request for a Master Account. The Board considered
making changes to the risk-based principles set out in the Account
Access Guidelines to accommodate the Payment Account, but believes it
appropriate to propose no amendments at this time.
1. Proposed Revisions to the Review Framework To Accommodate Payment
Accounts
As discussed in Section III.A of this notice, the Payment Account,
by design, would have a lower residual risk profile than a Master
Account due to the proposed Payment Account terms. Additionally and
consistent with the Account Access Guidelines, the Board expects the
Reserve Banks would incorporate, to the extent possible, the
assessments of an institution's primary supervisor into its independent
assessment of the institution's risk profile. Therefore, the Board is
proposing that requests for a Payment Account receive a more
streamlined review relative to the same institution requesting a Master
Account.\67\
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\67\ While Payment Account requests will receive a more
streamlined review than a Master Account request from the same
institution due to the Payment Account's lower residual risk
profile, the Board reiterates that the Guidelines' tiered framework
would continue to apply.
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2. Proposed Timing Expectations for Reviewing Access Requests
The Board believes that setting expectations about the period
within which a Reserve Bank would grant or deny an access request would
give requesting institutions clarity on the resources and time needed
for the evaluation process. While target dates are useful, the Board
also believes that the differences across access requests, which would
involve different charter types, business models, regulatory regimes,
and risk profiles, preclude specification of rigid timelines. Instead,
[[Page 30642]]
the Board believes that the tiering framework and the Payment Account's
risk controls permit the creation of indicative timelines.
First, the Board is proposing that the review of any requests for
accounts and services from Tier 1 institutions, including a Master
Account or Payment Account access request, should be completed within
45 calendar days after the Reserve Bank receives all requested
documentation. The proposed time period reflects the less intensive and
more streamlined review for Tier 1 institutions under the Guidelines'
tiering framework. Because detailed regulatory and financial
information would be available for most Tier 1 institutions, the Board
believes review of a Tier 1 institution's access request should take
less than 45 calendar days once the Reserve Bank receives all
documents. The Board, however, is proposing 45 calendar days to
accommodate those requests where a Reserve Bank may need additional
time, for example, if there have been recent material changes to an
institution's business model.
The Payment Account's standardized controls and limitations would
reduce its residual risk profile and thereby facilitate a more
streamlined review relative to the review of a request for a Master
Account from the same institution. The Board believes it would be
appropriate for Reserve Banks generally to evaluate Payment Account
access requests, under the Guidelines' tiered framework, from Tier 2
and Tier 3 institutions within 90 calendar days of receiving all
requested documentation.\68\ Reserve Banks would consult with the Board
if their review of a Payment Account request might take longer than the
90-calendar day period.
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\68\ An institution's delay or failure to provide documents
requested by the Reserve Bank might result in a delay in the Reserve
Bank's review of its access request.
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The proposal contemplates that Reserve Banks would consult with the
Board when the review of an access request might take longer than the
contemplated time period. Each institution is unique, and in certain
instances, an institution's request might require more time than the
proposed indicative timelines. In such cases, the Board would expect
the Reserve Bank to explain the efforts it has made to meet the
relevant review period, why it has been unable to meet the review
period, and the time expected to complete its review. The Board
believes the proposal would provide sufficient flexibility to Reserve
Banks while giving clearer expectations to institutions seeking
accounts and services.
The Board considered setting the time periods from the date on
which an institution first requested access. The Board understands that
some commenters may express concern that Reserve Banks will continually
request new documents to extend the review timeline. However, the Board
believes that setting the timeline from the date an institution submits
its access request would not give the Reserve Banks sufficient time or
information to review an institution's request. In many cases,
institutions do not submit sufficient documentation with their access
request to facilitate the Reserve Banks' review under the Guidelines.
For Master Account requests from Tier 2 and Tier 3 institutions,
the Board believes that the nature of the relevant variables--including
the variety of charter types, business models, regulatory regimes, and
risk profiles--precludes specification of a single timeline. As a
result, the Board is not setting an indicative timeline for Reserve
Bank reviews of these access requests. The Board would continue to
monitor the length of Reserve Banks' individual reviews.
IV. Request for Comment
The Board requests comments on all aspects of the proposed changes
to the Account Access Guidelines and the PSR Policy. Further, the Board
specifically seeks comment on the following aspects of the proposal:
1. Would the design of the Payment Account, as updated from the
RFI, support eligible institutions' payment activity and be an
attractive account option?
2. The Board is proposing to establish the Closing Balance Limit in
a new Part IV of the PSR Policy.
a. Given that paying zero interest and limiting closing balances on
Payment Accounts both serve a similar function and have important
interactions, should the Board consider codifying the Closing Balance
Limit in Regulation D? Why or why not?
b. Are there important interactions between limiting closing
balances and paying zero interest on Payment Accounts that the Board
has not identified?
3. The Board is proposing to restrict a Payment Account from being
an OC 1 Correspondent or OC 1 Respondent for any service to which
Payment Accounts have access. Should a Payment Account holder be
permitted to access the FedNow Service as an OC 1 Respondent? If an
institution were permitted to offer OC 1 Correspondent services to a
Payment Account holder for use of FedNow in an OC 1 Respondent
capacity, are there particular or unique risks the institution should
consider in deciding whether or not to offer such services?
4. The Board is proposing that the Closing Balance Limit be
established based on an institution's expected payment activity at the
beginning of the Federal Reserve's business day, not to exceed $1
billion.
a. Is $1 billion an appropriate maximum for the Closing Balance
Limit?
b. Are there effects of limiting closing balances in Payment
Accounts that the Board has not identified?
5. The proposal does not include specific illicit finance
requirements in connection with a Payment Account request. Should there
be requirements for institutions that are not federally insured? For
example, if an institution requesting a Payment Account were not
federally insured, should the institution be required to submit an
attestation that it is a ``bank'' under the BSA or be required to
submit an assessment of its BSA/AML and OFAC compliance programs from
an independent third-party, or should the Reserve Bank be required to
confirm that the BSA/AML and OFAC supervisory and regulatory regime of
the institution is comparable to that of a federally insured
institution?
6. Should the Board make any changes to the existing tiering
framework in connection with the Payment Account proposal and the
proposed amendments to the Guidelines?
7. Is the proposed timeline for reviewing access requests from Tier
1 institutions appropriate? Should the Board consider setting timelines
for reviewing other access requests from Tier 2 and Tier 3
institutions?
V. Competitive Impact Analysis
When considering changes to an existing service, the Board conducts
a competitive impact analysis to determine whether there would be a
direct and material adverse effect on the ability of other service
providers to compete effectively with the Federal Reserve in providing
similar services due to differing legal powers or the Federal Reserve's
dominant market position deriving from such legal differences.\69\
Consistent with this policy, the Board typically conducts a competitive
impact analysis when it
[[Page 30643]]
proposes amendments to the PSR Policy.
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\69\ See Federal Reserve Board, The Federal Reserve in the
Payments System (issued 1984, rev. 1990 and Jan. 2001), <a href="https://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm">https://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm</a>.
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With respect to the proposed amendments to Part II.F of the PSR
Policy (which would specify that Payment Account holders do not have
access to intraday credit), the Board believes that there would be no
adverse effects to other service providers resulting from the proposed
changes to the PSR Policy because the proposed changes do not
materially change the current approach of the PSR Policy--the
amendments would continue to limit intraday credit access to
institutions eligible for regular access to the discount window.
With respect to proposed new Part IV of the PSR Policy (which would
outline the types of accounts that the Reserve Banks provide to legally
eligible institutions, and certain standard terms that the Reserve
Banks apply to these accounts), the Board is not conducting a
competitive impact analysis. Under Board policy, the Board conducts a
competitive impact analysis when it considers ``an operational or legal
change, such as a change to a price or service, or a change to
Regulation J, if that change would have a direct and material adverse
effect on the ability of other service providers to compete effectively
with the Federal Reserve in providing similar services due to differing
legal powers or constraints or due to a dominant market position of the
Federal Reserve deriving from such legal difference.'' (emphasis
added).\70\ This policy is focused on the role of the Reserve Banks in
their provision of financial services, such as the Fedwire Funds
Service, the Fedwire Securities Service, and the FedNow Service, that
compete with private-sector financial services. Financial services are
distinct from an account, which at, its core, is a record of rights and
obligations between an account holder and its bank. With the proposed
introduction of Part IV, the Board is thus not considering a change to
any of the Reserve Banks' services (or Regulation J). Accordingly, the
Board is not conducting a competitive impact analyses in connection
with the proposed introduction of Part IV.
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\70\ Id.
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VI. Administrative Law Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
requires an agency to consider the impact of its rules on small
entities.\71\ In connection with a proposed rule, the RFA generally
requires an agency to prepare an Initial Regulatory Flexibility
Analysis (IRFA) describing the impact of the rule on small entities,
unless the head of the agency certifies that the proposal will not have
a significant economic impact on a substantial number of small entities
and publishes such certification along with a statement providing the
factual basis for such certification in the Federal Register. An IRFA
must contain (i) a description of the reasons why action by the agency
is being considered; (ii) a succinct statement of the objectives of,
and legal basis for, the proposal; (iii) a description of, and, where
feasible, an estimate of the number of small entities to which the
proposal will apply; (iv) a description of the projected reporting,
recordkeeping, and other compliance requirements of the proposal,
including an estimate of the classes of small entities that will be
subject to the requirement and the type of professional skills
necessary for preparation of the report or record; (v) an
identification, to the extent practicable, of all relevant Federal
rules that may duplicate, overlap with, or conflict with the proposal;
and (vi) a description of any significant alternatives to the proposal
that accomplish its stated objectives and minimize any significant
economic impact of the proposed rule on small entities.\72\
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\71\ Under regulations issued by the U.S. Small Business
Administration (SBA), a small entity includes a depository
institution, bank holding company, or savings and loan holding
company with total assets of $850 million or less. See 13 CFR
121.201. Consistent with the SBA's General Principles of
Affiliation, the Board includes the assets of all domestic and
foreign affiliates toward the applicable size threshold when
determining whether to classify a particular entity as a small
entity. See 13 CFR 121.103.
\72\ 5 U.S.C. 603(b)-(c).
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While the Board does not believe that the proposed changes to the
PSR Policy would have a significant economic impact on a substantial
number of small entities, and regardless of whether the RFA applies to
the PSR Policy per se, the Board has nevertheless prepared the
following IRFA with respect to the proposed changes to the PSR Policy.
The Board believes that the proposed changes to the PSR Policy to
accommodate the provision of Payment Accounts by Reserve Banks will not
have a significant economic impact on a substantial number of small
entities. First, Payment Accounts would be a new, optional way for
institutions to request access to Reserve Bank accounts and services,
and therefore no existing account holders would be affected. Second,
institutions would retain the option of requesting a Master Account
(for which the proposed changes to accommodate the Payment Account are
not applicable), OC 1 Respondent status, or not requesting access. The
proposed changes to the PSR Policy, therefore, would not impose
mandatory requirements on any small entities. The Board invites public
comments on all aspects of this IFRA.
1. Reasons Action Is Being Considered
As discussed in this notice, the Board is proposing to revise the
PSR Policy to accommodate the provision of Payment Accounts by Reserve
Banks.
2. Objectives of and Legal Basis for the Proposal
As discussed in this notice, the proposed changes to the PSR Policy
would implement certain proposed terms of the Payment Account, most
notably the Closing Balance Limit, terms to mitigate illicit finance
risk, the intraday credit restriction, the limitation of services to
those in which the Reserve Banks can automatically reject transactions
that would cause an overdraft, and the OC 1 Correspondent and OC 1
Respondent restrictions.
Section 11(j) of the Federal Reserve Act authorizes the Board to
exercise general supervision over the Reserve Banks, including their
provision of accounts and services.\73\ Pursuant to this authority, the
Board issued the PSR Policy to support its objective to foster the
safety and efficiency of payment, clearing, settlement, and recording
systems and to promote financial stability, more broadly. The proposed
changes to the PSR Policy would further these objectives.
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\73\ 12 U.S.C. 248(j).
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3. Description and Estimate of the Number of Small Entities
The SBA has adopted size standards for determining whether a
particular entity is a ``small entity'' for purposes of the RFA. The
Board believes that the most appropriate SBA size standard to apply in
determining whether a member bank, depository institution, or branch or
agency of a foreign bank is a small entity is the SBA size standard for
``commercial banking.'' Under this standard, an entity engaged in
commercial banking is considered a small entity if it has total assets
of $850 million or less.\74\
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\74\ See 13 CFR 121.201.
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The population of relevant institutions could potentially include
all institutions that (1) are legally eligible for a Payment Account,
and (2) do not have a Master Account or settle transactions in a
correspondent's Master
[[Page 30644]]
Account.\75\ The Board estimates that, as of the end of 2025, there are
approximately 7,000 small entities, of which 6,800 already have a
Master Account or access to services. Accordingly, the Board estimates
that there are approximately 200 small entities that the proposed
amendments to the PSR Policy might affect, were these small entities to
decide to request Payment Accounts.
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\75\ The Board assumes that small entities that currently have
Master Accounts or settle transactions in a correspondent's Master
Account would not request a Payment Account.
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4. Description of Compliance Requirements
The proposal to establish a Closing Balance Limit for Payment
Accounts in the PSR Policy would impose additional compliance
requirements on institutions requesting and holding a Payment Account.
As discussed in Section III.A.4 above, an individual Payment Account's
Closing Balance Limit would be based on the Reserve Bank's analysis of
the Payment Account holder's payment flows, using internal Reserve Bank
data and any forecasts and additional information provided by the
Payment Account holder. To comply with the proposed terms to mitigate
illicit finance risk in the PSR Policy, a Payment Account holder may be
required on an ad hoc or ongoing basis to provide information to
demonstrate its compliance with BSA/AML and OFAC requirements as
discussed in Section III.A.3 above.\76\
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\76\ See Section VI.B for the estimated annual burden hours
associated with setting the Closing Balance Limit and compliance
with the terms to mitigate illicit finance risk. As stated in
footnote 57 supra, while the terms in the PSR Policy address Payment
Account holders, the Reserve Banks would retain their discretion to
implement illicit finance controls for Master Accounts and OC 1
Respondents.
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5. Duplicative, Overlapping, and Conflicting Rules
The Board is not aware of any federal rules that may duplicate,
overlap with, or conflict with the proposed changes to the PSR Policy.
6. Significant Alternatives Considered
The Board considered alternatives such as setting the Closing
Balance Limit to zero and calculating the Closing Balance Limit in a
different manner (see Section III.A.4 above) and not proposing any
illicit finance terms (see Section III.A.3 above). The Board does not
believe that any of these alternatives considered by the Board would
have affected the economic impact on small entities because, as noted
above, the Payment Account would be a new, optional way for
institutions to request access to accounts and services, and the
proposed changes to the PSR Policy would not impose mandatory
requirements on any small entities.
Therefore, the Board believes that proposed changes to the PSR
Policy will not have a significant economic impact on substantial
number of small entities supervised by the Board.
The Board welcomes comment on all aspects of its analysis. In
particular, the Board requests that commenters describe the nature of
any impact on small entities and provide empirical data to illustrate
and support the extent of the impact.
B. Paperwork Reduction Act
Certain provisions of the Guidelines and PSR Policy contain
``collections of information'' within the meaning of the Paperwork
Reduction Act (PRA) of 1995.\77\ In accordance with the requirements of
the PRA, the Board may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number. The Board has reviewed the Guidelines and PSR Policy
under authority delegated to the Board by the OMB. The Guidelines and
PSR Policy contain information collections subject to the PRA. The
Board proposes to implement for three years the Disclosure Provisions
Associated with the Payment System Risk Policy and Account Access
Guidelines (FR 4103; OMB No. 7100-NEW) to account for these provisions.
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\77\ 44 U.S.C. 3501-3521.
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Comments are invited on:
(a) whether the collection of information is necessary for the
proper performance of the Board's functions, including whether the
information has practical utility;
(b) the accuracy of the estimates of the burden of the information
collection, including the validity of the methodology and assumptions
used;
(c) ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments on aspects of this document that may affect reporting,
recordkeeping, or disclosure requirements and burden estimates should
be sent to the addresses listed in the ADDRESSES section. A copy of the
comments may also be submitted to the OMB desk officer: By mail to U.S.
Office of Management and Budget, 725 17th Street NW, #10235,
Washington, DC 20503 or by facsimile to (202) 395-5806, Attention,
Federal Banking Agency Desk Officer.
Proposed Implementation of the Following Information Collection
Collection Title: Disclosure Provisions Associated with the Payment
System Risk Policy and Account Access Guidelines.
Collection Identifier: FR 4103.
OMB Number: 7100-NEW.
General Description of Collection:
PSR Policy: The proposed changes to the PSR Policy would introduce
two disclosure provisions. First, under the proposal, Payment Accounts
would be subject to a Closing Balance Limit, which would be set by the
Reserve Banks and reviewed at least annually. In order to initially set
the Closing Balance Limit, a Reserve Bank would rely on information
obtained by the Reserve Bank during its review of the institution's
Payment Account request. Payment Account holders would have an ongoing
ability to submit additional data and information to support the
Reserve Bank's determination of the individual Payment Account's
Closing Balance Limit. The disclosure of this additional data and
information would be voluntary. Second, under the proposal, a Payment
Account holder may be required on an ad hoc or ongoing basis to provide
information to demonstrate its compliance with BSA/AML and OFAC
requirements.\78\ If required by a Reserve Bank, the disclosure of this
information would be required to retain a benefit.
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\78\ As stated in footnote 57 supra, while the terms in the PSR
Policy address Payment Account holders, the Reserve Banks would
retain their discretion to implement illicit finance controls for
Master Accounts and OC 1 Respondents.
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Guidelines: Pursuant to the Guidelines, institutions requesting an
account or services from a Reserve Bank must disclose to the Reserve
Bank information about the institution sufficient for the Reserve Bank
to evaluate the request against the Guidelines. These disclosures are
required to obtain a benefit.
Frequency: Event-generated.
Respondents: Institutions that are legally eligible to, and request
to, obtain an account or services from a Reserve Bank. Legally eligible
institutions include member banks, depository institutions, and U.S.
branches and
[[Page 30645]]
agencies of foreign banks pursuant to Sections 13(1) and 13(14) of the
FRA.\79\
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\79\ The Guidelines apply to access requests from any
institution legally eligible to obtain an account or services,
including Edge Agreement Corporations (12 U.S.C. 601-604a, 611-631)
and to requests to be an agent or participant in an excess balance
account (12 CFR 204.10(d)); provided that the Guidelines and PSR
Policy do not apply to accounts and services provided by a Reserve
Bank (i) as depository and fiscal agent, such as those provided for
the Treasury and for certain government-sponsored entities (12
U.S.C. 391, 393-95, 1823, 1435), (ii) to certain international
organizations (22 U.S.C. 285d, 286d, 290o-3, 290i-5, 290l-3), (iii)
to designated financial market utilities (12 U.S.C. 5465), and (iv)
pursuant to the Board's Regulation N (12 CFR part 214), or to joint
accounts as described in the Board's Guidelines for Evaluating Joint
Account Requests.
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Total estimated number of respondents: 34.
Estimated average hours per response:
Guidelines--20.\80\
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\80\ These Guidelines disclosure requirements are currently
applicable to all requests for access to accounts and services
(e.g., Master Account requests) and would be applicable to Payment
Account requests.
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PSR Policy--
Closing Balance Limit disclosure--1.\81\
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\81\ The disclosure provision relating to the Closing Balance
Limit would only be applicable to Payment Accounts.
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BSA/AML and OFAC compliance disclosure--3.\82\
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\82\ The disclosure provision relating to illicit finance
controls would be applicable to Payment Accounts, Master Accounts,
and OC 1 Respondents, based on Reserve Bank discretion.
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Total estimated annual burden hours: 816.
Current actions:
PSR Policy: The proposal would add two disclosure provisions to the
PSR Policy. First, as discussed above in Section III.A.4, a Reserve
Bank would review an individual Payment Account's Closing Balance Limit
at least annually, using internal Reserve Bank data and any forecasts
and additional information provided by the Payment Account holder, to
ensure the limit remains appropriately sized. The Closing Balance
Limit, and therefore this disclosure, would only be applicable
institutions that are granted a Payment Account. Second, as discussed
in Section III.A.3 above, a Payment Account holder may be required on
an ad hoc or ongoing basis to provide information to demonstrate its
compliance with BSA/AML and OFAC requirements.\83\
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\83\ As stated in footnote 57 supra, while the terms in the PSR
Policy address Payment Account holders, the Reserve Banks would
retain their discretion to implement illicit finance controls for
Master Accounts and OC 1 Respondents.
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Guidelines: Reserve Banks use the Guidelines to analyze all
requests for access to accounts and services. Currently, institutions
requesting an account (e.g., a Master Account) or services from a
Reserve Bank must disclose to the Reserve Bank information about the
institution sufficient for the Reserve Bank to evaluate the request
against the six principles of the Guidelines. The proposed change to
the Guidelines would add the Payment Account as a new type of account
that an eligible institution may request. The request for a Payment
Account, like all other account requests, would be evaluated pursuant
to the Guidelines, and any institution requesting a Payment Account
from a Reserve Bank would be required to disclose to the Reserve Bank
information about the institution sufficient for the Reserve Bank to
evaluate the request.
VII. Federal Reserve Policy on Payment System Risk
For the reasons set forth in the preamble, the Board proposes to
amend the PSR Policy as follows:
[The following titled portion will not be published in the Code of
Federal Regulations.]
Revision to the Introduction to the PSR Policy
The Board proposes to revise the Introduction section of the PSR
Policy by adding the following new paragraph immediately before the
last paragraph in the existing section.
Introduction
* * * * *
Part IV of this policy outlines some of the different types of
Reserve Bank accounts (accounts) that Reserve Banks provide to most
legally eligible institutions, and the standard terms under which these
accounts and Reserve Bank financial services (services) are
provided.\1\ Under this part, the Board recognizes the benefit of
providing transparency around the standard terms under which the
Reserve Banks provide these accounts and services while acknowledging
that Reserve Banks maintain discretion whether to provide these
accounts and services and whether to impose additional, more
restrictive terms on the provision of these accounts and services.
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\1\ This policy does not apply to accounts that the Reserve
Banks provide (i) as depository and fiscal agent, such as those
provided for the Treasury and for certain government-sponsored
entities (12 U.S.C. 391, 393-95, 1823, 1435), (ii) to certain
international organizations (22 U.S.C. 285d, 286d, 290o-3, 290i-5,
290l-3), (iii) to designated financial market utilities (12 U.S.C.
5465), and (iv) pursuant to the Board's Regulation N (12 CFR part
214), excess balances accounts (12 CFR 204.10(d)), and joint
accounts described in the Board's Guidelines for Evaluating Joint
Account Requests.
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Revision to Section II.F of the PSR Policy
The Board proposes to revise Section II.F of the PSR Policy by
adding the following new section II.F.5 (``Special-purpose account
(Payment Account)'') and renumbering existing section II.F.5 as section
II.F.6.
F. Special Situations
* * * * *
5. Special-Purpose Account (Payment Account)
Institutions that have been granted a special-purpose account for
purposes of settling and clearing payment activity, also known as a
Payment Account, may not incur daylight overdrafts. Reserve Banks will
monitor the institution's activity in real time and reject transactions
that would create an overdraft. Reserve Banks may apply other risk
controls as necessary.\2\
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\2\ See also infra Part IV.
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Addition of Part IV to the PSR Policy and Conforming Changes to the
Table of Contents
The Board proposes to revise the PSR Policy by adding the following
new Part IV following Part III and proposes to make conforming changes
to the table of contents to the PSR Policy.
Part IV. Policy on Reserve Bank Accounts and Services
This part outlines some of the different types of accounts and
services that Reserve Banks provide to legally eligible institutions,
and the standard terms under which these accounts are provided.\3\
Decisions regarding the provision of accounts and services are made at
the discretion of individual Reserve Banks, and the Reserve Banks
retain discretion to impose additional terms to manage the risks set
forth in the Guidelines on a case-by-case basis.
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\3\ Terms, as used in this part, refers to parameters set by the
Board by regulation or policy and as implemented by the Reserve
Banks through their Operating Circulars and other agreements.
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Reserve Banks evaluate requests from legally eligible institutions
for access to accounts and services under the Board's guidelines for
Reserve Banks to evaluate requests for access to Reserve Bank accounts
and services (Account Access Guidelines or Guidelines).\4\
---------------------------------------------------------------------------
\4\ 87 FR 51099 (Aug. 19, 2022) (as amended by 89 FR 100495
(Dec. 12, 2024) (and as proposed to be amended by this Federal
Register notice
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A. Reserve Bank Account Options
For most legally eligible institutions, the Reserve Banks offer two
account
[[Page 30646]]
types: a Master Account or a Payment Account.\5\ A Master Account is a
general-purpose account maintained by a Reserve Bank for a legally
eligible institution. A Payment Account is a special-purpose account
maintained by a Reserve Bank for a legally eligible institution for the
purpose of clearing and settling payments activity of the institution,
its depositors, and its other customers.
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\5\ Master Accounts and Payment Accounts are distinct from the
accounts that Reserve Banks provide (i) as depository and fiscal
agent, such as those provided for the Treasury and for certain
government-sponsored entities (12 U.S.C. 391, 393-95, 1823, 1435),
(ii) to certain international organizations (22 U.S.C. 285d, 286d,
290o-3, 290i-5, 290l-3), (iii) to designated financial market
utilities (12 U.S.C. 5465), and (iv) pursuant to the Board's
Regulation N (12 CFR part 214), excess balances accounts (12 CFR
204.10(d)) and joint accounts described in the Board's Guidelines
for Evaluating Joint Account Requests.
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B. Reserve Bank Account and Service Terms
Accounts and services are subject to the terms set forth in the
Reserve Banks' operating circulars and any other agreements governing
the provision of accounts and services. These terms are designed to
mitigate a range of risks set forth in the Account Access Guidelines.
The Reserve Banks implement various controls to mitigate the risks
associated with the provision of accounts and services. For example,
Reserve Banks in certain cases use credit-limit monitoring of account
balances, limit access to intraday credit, restrict access to different
services, and impose account balance requirements to mitigate the risks
posed by an institution's access to accounts and services.
Certain terms apply to the provision of all Reserve Bank accounts.
In particular, institutions generally may only maintain one account
with a Reserve Bank, either a single Payment Account or a single Master
Account.\6\ Further, Reserve Banks do not recognize third-party
interests in Master Accounts or Payment Accounts, and they do not
maintain Master Accounts or Payment Accounts for the benefit of third
parties. For example, Reserve Banks do not maintain accounts for
institutions acting in a trustee, fiduciary, or similar capacity.
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\6\ An institution may have more than one account only in the
following circumstances:
(i) it may retain, for a transitional period not to exceed 12
months, the account of an acquired, failed, or a non-surviving
institution with which it has merged or consolidated. The relevant
Reserve Bank may restrict the use of such an account as it deems
necessary or appropriate, and may require that the Financial
Institution execute a security agreement covering multiple accounts;
(ii) a U.S. branch or agency of a foreign bank, an Edge Act
corporation, or an Agreement Corporation may maintain a single
account, or it may maintain an account for each group of offices
located in the same state and the same Federal Reserve District; and
(iii) the relevant Reserve Bank, in its discretion, may allow
multiple accounts in other situations.
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1. Master Account Terms
The Reserve Banks' general-purpose Master Accounts do not have
standard usage restrictions. A Master Account may be used to settle any
service approved by the relevant Reserve Bank. Notwithstanding the
foregoing, Reserve Banks have discretion on a case-by-case basis to
impose other terms on a Master Account or terminate a Master Account to
manage the risks set forth in the Guidelines.\7\
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\7\ Such conditions or limitations may include credit-limit
monitoring of account balances, limiting access to intraday credit,
restricting or not permitting access to different Reserve Bank
services, and imposing account balance requirements.
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2. Payment Account Terms
Payment Accounts are special purpose accounts designed for the
purpose of clearing and settling payments activity of the institution,
its depositors, and its other customers. Payment Accounts have a
standard set of risk-mitigating terms that create a lower residual risk
profile than a Master Account.
a. Account Balances
Closing Balance Limit: The Reserve Bank will require each holder of
a Payment Account to limit closing balances maintained in its Payment
Account to the amount set pursuant to this part (the Closing Balance
Limit). The Payment Account holder is expected to achieve an account
balance at or below the Closing Balance Limit at the Federal Reserve's
close of business.\8\
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\8\ The business day of Federal Reserve Financial Services is
defined in Part II. It is the 24-hour period that begins immediately
after the regularly-scheduled close of business of the Fedwire Funds
Service (on days when the Fedwire Funds Service is open) and the
FedNow Service on all other days, including weekends and holidays
(which, in both cases, is generally 7:00 p.m. ET). For the purposes
of the Closing Balance Limit, the open of the Federal Reserve
business day is the open of the FedNow Service Funds Transfer
Business Day (generally 7:01 p.m. ET).
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A Payment Account is designed only to facilitate the clearing and
settlement of the Payment Account holder's payment activity. Payment
Account holders are permitted to maintain balances in the account at
the Federal Reserve's close of business only to provide sufficient
liquidity for payment activity at the beginning of the next Federal
Reserve business day. In setting the Closing Balance Limit for an
individual Payment Account, the Reserve Bank will analyze internal
Reserve Bank data on the Payment Account holder's payment flows (if
available), in particular at the beginning of the Federal Reserve's
business day, and take into consideration periods of time when external
sources of liquidity may be limited, such as during weekends and
holidays.\9\ In addition, the Payment Account holder may provide the
Reserve Bank with forecasts and additional information related to
expected daily variations in payments and growth in payments over time.
The Reserve Bank will review an individual Payment Account's Closing
Balance Limit at least annually, using Reserve Bank data and any
forecasts and additional information provided by the Payment Account
holder, to ensure the limit remains appropriately sized to support the
Payment Account holder's payments at the open of the Federal Reserve
business day.
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\9\ When setting the initial Closing Balance Limit for a Payment
Account, internal Reserve Bank data may not be available. The
Reserve Bank will rely on information obtained by the Reserve Bank
during its review of the institution's Payment Account request to
conduct its analysis to set the initial Closing Balance Limit.
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At the same time, the Federal Reserve desires to limit the overall
size of closing Payment Account balances. Therefore, notwithstanding
the foregoing, an individual Payment Account's Closing Balance Limit
shall not exceed $1 billion.
The Reserve Bank has sole discretion to set the Closing Balance
Limit of the Payment Account within the parameters noted above.
In unusual circumstances, the Reserve Bank may permit, on a case-
by-case basis, a Payment Account holder to temporarily exceed its
Closing Balance Limit (Temporary Closing Amount). The Reserve Bank will
consult with the Board before (i) permitting a Payment Account's
Temporary Closing Amount to exceed $1 billion or (ii) if it permits a
Payment Account's Temporary Closing Amount to excess the relevant
Payment Account's Closing Balance Limit for two consecutive Federal
Reserve business days.
A Reserve Bank may contact a Payment Account holder if its Payment
Account balance exceeded its Closing Balance Limit at the close of
Federal Reserve business. If a Payment Account holder repeatedly
violates its Closing Balance Limit, a Reserve Bank should consider
additional restrictions or terminating the institution's access to one
or more services. The Reserve Bank should consider closing the account
in cases where the Payment Account holder is in frequent or material
[[Page 30647]]
noncompliance with its Closing Balance Limit.
Intraday Balance Limit: Payment Accounts have no intraday account
balance limit. During the Federal Reserve business day, a Payment
Account holder is allowed to maintain an unlimited balance in a Payment
Account. This will allow the Payment Account holder to fund its
payments activity flexibly during the Federal Reserve business day.
b. Interest on Overnight Balances
Pursuant to the Board's Regulation D, a Payment Account holder will
not receive interest on balances maintained at a Reserve Bank.\10\
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\10\ 12 CFR part 204.
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c. Access to Reserve Bank Credit
No Access to the Discount Window: Pursuant to the Board's
Regulation A, a Payment Account holder will not be permitted to access
credit from the discount window.
No Access to Intraday Credit and Credit-Limit Monitoring: Payment
Account holders will not be permitted to utilize Reserve Bank intraday
credit (i.e., incur daylight overdrafts). Reserve Banks will reject
transactions that would create an overdraft.\11\
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\11\ See also supra Part II.
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d. Reserve Bank Financial Services
A Payment Account may only be used to settle services for which the
Reserve Banks have automated solutions to reject a transaction that
would cause the Payment Account balance to be negative.\12\
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\12\ The Reserve Banks maintain a public list of Reserve Bank
services with automated controls to prevent a negative balance.
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e. Account Usage Restrictions
Correspondent Prohibition: A Payment Account holder is not
permitted to act as a Correspondent as defined in the Reserve Banks'
Operating Circular 1 (Accounts) (OC 1).\13\ Otherwise, a Payment
Account may be used to clear and settle transactions for which the
Payment Account holder is not the originator or beneficiary or for
which the Payment Account holder is the intermediary bank.
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\13\ Many legally eligible institutions access Reserve Bank
services directly from a Reserve Bank but settle the debits and
credit associated with their Reserve Bank service activity in the
Master Account of another legally eligible institution.
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Respondent Prohibition: A Payment Account holder is not permitted
to act as a Respondent as defined in OC 1.
f. Illicit Finance Risk Mitigants
Under the Account Access Guidelines, a Payment Account holder's
access to an account and services should not create undue risk to the
overall economy by facilitating activities such as money laundering,
terrorism financing, fraud, cybercrimes, economic or trade sanctions
violations, or other illicit activity (illicit activity).
In many cases, the Reserve Bank will receive, on an ongoing basis,
an assessment of the Payment Account holder by its primary supervisor.
A Reserve Bank may, at its discretion, require a Payment Account holder
to provide additional information to mitigate illicit finance risk.
These mitigants may include, but are not limited to, requiring that the
Payment Account holder:
<bullet> Provide the Reserve Bank with an independent, third-party
assessment that the Payment Account holder's BSA/AML and OFAC
compliance programs are consistent with the terms in the Board's
Account Access Guidelines;
<bullet> Provide the Reserve Bank with an attestation regarding the
Payment Account holder's BSA/AML or OFAC compliance;
<bullet> Meet regularly with the Reserve Bank to discuss noteworthy
or material compliance issues regarding BSA/AML and OFAC;
<bullet> Notify the Reserve Bank of any BSA/AML or OFAC enforcement
action taken against the Payment Account holder by a regulatory or
supervisory authority;
<bullet> Notify the Reserve Bank of any material deficiencies
identified regarding the Payment Account holder's BSA/AML or OFAC
compliance program; or
<bullet> Provide the Reserve Bank with copies of audit reports of
the Payment Account holder's compliance programs.
At its discretion, the Reserve Bank may take additional actions in
response to heightened illicit finance risk, including restricting or
terminating the Payment Account holder's access to services or closing
of the institution's account.
g. Discretion To Impose Other Terms
Reserve Banks have discretion on a case-by-case basis to impose
other terms to manage the risks set forth in the Guidelines with
respect to the ongoing provision of a Payment Account.
VIII. Updated Account Access Guidelines
For the reasons set forth in the preamble, the Board proposes to
amend and restate the Account Access Guidelines as follows:
[The following titled portion will not be published in the Code of
Federal Regulations.]
Guidelines Covering Access to Accounts and Services at Federal Reserve
Banks (Account Access Guidelines)
Section 1: Principles
The Board of Governors of the Federal Reserve System (Board) has
adopted these account access guidelines comprised of six principles to
be used by Federal Reserve Banks (Reserve Banks) in evaluating requests
(access requests) for Reserve Bank accounts (accounts) and Reserve Bank
financial services (services).<SUP>1 2</SUP> The Board has issued these
account access guidelines under its general supervision authority over
the operations of the Reserve Banks, 12 U.S.C. 248(j). Decisions on
individual requests for access to accounts and services are made by the
Reserve Bank in whose District the requester is located.
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\1\ As discussed in the Federal Reserve's Operating Circular No.
1, an institution (other than a Payment Account holder) has the
option to settle its Federal Reserve financial services transactions
in its master account with a Reserve Bank or in the master account
of another institution that has agreed to act as its correspondent.
These principles apply to requests for either arrangement.
\2\ Reserve Bank financial services mean all services subject to
Federal Reserve Act Section 11A (``priced services'') and Reserve
Bank cash services. Financial services do not include transactions
conducted as part of the Federal Reserve's open market operations or
administration of the Reserve Banks' Discount Window.
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The Account Access Guidelines apply to access requests from all
institutions that are legally eligible to receive an account or
services, as discussed in more detail in the first principle.\3\ The
Board expects the Reserve Banks to engage in consultation with each
other and the Board, as appropriate, on reviews of access requests, as
well as ongoing monitoring of accountholders, to ensure that the
guidelines are implemented in a consistent and timely manner. The Board
believes it is important to make clear that legal eligibility does not
bestow a right to obtain an account and services. While decisions
regarding individual access requests remain at the discretion of the
individual Reserve Banks, the Board believes it is important that the
Reserve Banks apply a consistent set of guidelines when reviewing such
access requests to promote consistency across Reserve Banks and to
facilitate equitable treatment across institutions.
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\3\ These principles would not apply to accounts provided under
fiscal agency authority, to accounts authorized pursuant to the
Board's Regulation N (12 CFR part 214), to joint account requests,
or account requests from designated financial market utilities,
since existing rules or policies already set out the considerations
involved in granting these types of accounts.
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These Account Access Guidelines also serve to inform requesters of
the
[[Page 30648]]
factors that a Reserve Bank will review in any access request and
thereby allow a requester to make any enhancements to its risk
management, documentation, or other practices to attempt to demonstrate
how it meets each of the principles.
These guidelines broadly outline considerations for evaluating
access requests, but they are not intended to provide assurance that
any specific institution will be granted an account or services. The
individual Reserve Bank will evaluate each access request on a case-by-
case basis. When applying these account access guidelines, the Reserve
Bank should factor, to the extent possible, the assessments of an
institution by state and/or federal supervisors into its independent
analysis of the institution's risk profile. The evaluation of an
institution's access request should also consider whether the request
has the potential to set a precedent that could affect the Federal
Reserve's ability to achieve its policy goals now or in the future.
If the Reserve Bank decides to grant an access request, it may
impose (at the time of account opening, granting access to a service,
or any time thereafter) obligations relating to, or conditions or
limitations on, use of the account or services as necessary to limit,
operational, credit, legal, or other risks posed to the Reserve Banks,
the payment system, financial stability, or the implementation of
monetary policy or to address other considerations.\4\ The account-
holding Reserve Bank may, at its discretion, decide to place additional
risk management controls on the account and services, such as real-time
monitoring of account balances, as it may deem necessary to mitigate
risks. If the obligations, conditions or limitations, or controls are
ineffective in mitigating the risks identified--or if they are
breached--the Reserve Bank may further restrict the institution's use
of accounts and services or may close the account.
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\4\ The conditions imposed could include, for example,
establishing a cap on the amount of balances held in the account. In
addition, the Board may authorize a Reserve Bank to pay a different
rate of interest on balances held in the account or may limit the
amount of balances in the account that receive interest.
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While decisions regarding the conditions or limitations imposed on
an institution's use of accounts and services are made at the
discretion of individual Reserve Banks, the Board believes that setting
out a standard set of terms will facilitate greater transparency and
consistent treatment across institutions with similar business needs or
models.\5\ Accordingly, these Account Access Guidelines apprise
requesters of two different account types that come with different
terms: Master Accounts and Payment Accounts (as described in Section
2).
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\5\ Terms, as used in these guidelines, refers to parameters set
by the Board by regulation or policy and as implemented by the
Reserve Banks through their Operating Circulars and other
agreements.
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Establishment of an account and provision of services by a Reserve
Bank under these guidelines is not an endorsement or approval by the
Federal Reserve of the institution. Nothing in the Board's guidelines
relieves any institution from compliance with obligations imposed by
the institution's supervisors and regulators.
Accordingly, Reserve Banks should evaluate how each institution
requesting access to an account or services will meet the following
principles.\6\ Each principle identifies factors that Reserve Banks
should consider when evaluating an institution against the specific
risk targeted by the principle (several factors are pertinent to more
than one principle). The Reserve Banks should consider the nature of
the institution and the access being sought when reviewing a request
under these guidelines. For example, provision of a Payment Account
with its accompanying controls poses materially lower risk than
provision of a Master Account.
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\6\ The principles are designed to address the risks posed by an
institution having access to an account or services, ranging from
narrow risks (e.g., to an individual Reserve Bank) to broader risks
(e.g., to the overall economy). Reviews performed by the Reserve
Bank may address several principles at once.
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The identified factors are commonly used in the regulation and
supervision of federally insured institutions. As a result, the Board
anticipates the application of these guidelines to access requests by
federally insured institutions will be fairly straightforward in most
cases, which is consistent with Section 3 of these Guidelines. However,
Reserve Bank assessments of access requests from non-federally insured
institutions may require more extensive due diligence.
Reserve Banks monitor and analyze the condition of institutions
with access to accounts and services on an ongoing basis. Reserve Banks
should use these guidelines to re-evaluate the risks posed by an
institution in cases where its condition monitoring and analysis
indicate potential changes in the risk profile of an institution,
including a significant change to the institution's business model.
1. Each institution requesting an account or services must be
eligible under the Federal Reserve Act or other federal statute to
maintain an account and receive services and should have a well-
founded, clear, transparent, and enforceable legal basis for its
operations.\7\
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\7\ These principles do not apply to accounts and services
provided by a Reserve Bank (i) as depository and fiscal agent, such
as those provided for the Treasury and for certain government-
sponsored entities (12 U.S.C. 391, 393-95, 1823, 1435), (ii) to
certain international organizations (22 U.S.C. 285d, 286d, 290o-3,
290i-5, 290l-3), (iii) to designated financial market utilities (12
U.S.C. 5465), and (iv) pursuant to the Board's Regulation N (12 CFR
part 214) or to joint accounts as described in the Board's
Guidelines for Evaluating Joint Account Requests.
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a. Unless otherwise specified by federal statute, only member
banks, entities that meet the definition of a depository institution
under section 19(b) of the Federal Reserve Act, or U.S. branches or
agencies of foreign banks are legally eligible to obtain accounts and
services.\8\
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\8\ Unless otherwise expressly excluded under the previous
footnote, these principles apply to account and service requests
from all institutions, including member banks, entities that meet
the definition of a depository institution under Section 19(b) (12
U.S.C. 461(b)(1)(A)), U.S. branches and agencies of foreign banks
(12 U.S.C. 347d), and Edge and Agreement Corporations (12 U.S.C.
601-604a, 611-631), and to requests to be an agent or participant in
an excess balance account (12 CFR 204.10(d)).
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b. The Reserve Bank should assess the consistency of the
institution's activities and services with applicable laws and
regulations, such as Article 4A of the Uniform Commercial Code and the
Electronic Fund Transfer Act (15 U.S.C. 1693 et seq). The Reserve Bank
should also consider whether the design of the institution's services
would impede compliance by the institution's customers with U.S.
sanctions programs, Bank Secrecy Act (BSA) and anti-money laundering
(AML) requirements or regulations, or consumer protection laws and
regulations.
2. Provision of an account and services to an institution should
not present or create undue credit, operational, settlement, cyber or
other risks to the Reserve Bank.
a. The Reserve Bank should incorporate, to the extent possible, the
assessments of an institution by state and/or federal supervisors into
its independent assessment of the institution's risk profile.
b. The Reserve Bank should confirm that the institution has an
effective risk management framework and governance arrangements to
ensure that the institution operates in a safe and sound manner, during
both normal conditions and periods of idiosyncratic and market stress.
[[Page 30649]]
i. For these purposes, effective risk management includes having a
robust framework, including policies, procedures, systems, and
qualified staff, to manage applicable risks. The framework should at a
minimum identify, measure, and control the particular risks posed by
the institution's business lines, products and services. The
effectiveness of the framework should be further supported by internal
testing and internal audit reviews.
ii. The framework should be subject to oversight by a board of
directors (or similar body) as well as oversight by state and/or
federal banking supervisor(s).
iii. The framework should clearly identify all risks that may arise
related to the institution's business (e.g., legal, credit, liquidity,
operational, custody, investment) as well as objectives regarding the
risk tolerances for the management of such risks.
c. The Reserve Bank should confirm that the institution is in
substantial compliance with its supervisory agency's regulatory and
supervisory requirements.
d. The institution must, in the Reserve Bank's judgment:
i. Demonstrate an ability to comply, were it to obtain an account,
with Board orders and policies, Reserve Bank agreements and operating
circulars (Operating Circulars), and other applicable Federal Reserve
requirements.
ii. Be in sound financial condition, including maintaining adequate
capital to continue as a going concern and to meet its current and
projected operating expenses under a range of scenarios.
iii. Demonstrate the ability, on an ongoing basis (including during
periods of idiosyncratic or market stress), to meet all of its
obligations in order to remain a going concern and comply with its
agreement for a Reserve Bank account and services, including by
maintaining:
A. Sufficient liquid resources to meet its obligations to the
Reserve Bank under applicable agreements, Operating Circulars, and
Board policies;
B. The operational capacity to ensure that such liquid resources
are available to satisfy all such obligations to the Reserve Bank on a
timely basis; and
C. Settlement processes that are designed to appropriately monitor
balances in its account on an intraday basis, to process transactions
through its account in an orderly manner and comply with any balance
requirements by the end of the business day.\9\
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\9\ All accounts must comply with any applicable balance
requirements. Generally, Master Accounts must achieve a positive
balance at the close of the Federal Reserve business day (as defined
in Part II of the PSR Policy). Payment Accounts must have a balance
at or below their applicable balance limit at the close of the
Federal Reserve business day.
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iv. Have in place an operational risk framework designed to ensure
operational resiliency against events associated with processes,
people, and systems that may impair the institution's use and
settlement of Reserve Bank services. This framework should consider
internal and external factors, including operational risks inherent in
the institution's business model, risks that might arise in connection
with its use of any account and services, and cyber-related risks. At a
minimum, the operational risk framework should:
A. Identify the range of operational risks presented by the
institution's business model (e.g., cyber vulnerability, operational
failure, resiliency of service providers), and establish sound
operational risk management objectives to address such risks;
B. Establish sound governance arrangements, rules, and procedures
to oversee and implement the operational risk management framework;
C. Establish clear and appropriate rules and procedures to carry
out the risk management objectives;
D. Employ the resources necessary to achieve its risk management
objectives and implement effectively its rules and procedures,
including, but not limited to, sound processes for physical and
information security, internal controls, compliance, program
management, incident management, business continuity, audit, and well-
qualified personnel; and
E. Support compliance with the electronic access requirements,
including security measures, outlined in the Reserve Banks' Operating
Circular 5 and its supporting documentation.
3. Provision of an account and services to an institution should
not present or create undue credit, liquidity, operational, settlement,
cyber or other risks to the overall payment system.
a. The Reserve Bank should incorporate, to the extent possible, the
assessments of an institution by state and/or federal supervisors into
its independent assessment of the institution's risk profile.
b. The Reserve Bank should confirm that the institution has an
effective risk management framework and governance arrangements to
limit the impact that idiosyncratic stress, disruptions, outages, cyber
incidents, or other incidents at the institution might have on other
institutions and the payment system broadly. The framework should
include:
i. Clearly defined operational reliability objectives and policies
and procedures in place to achieve those objectives;
ii. A business continuity plan that addresses events that have the
potential to disrupt operations and a resiliency objective to ensure
the institution can resume services in a reasonable timeframe; and
iii. Policies and procedures for identifying risks that external
parties may pose to sound operations, including interdependencies with
affiliates, service providers, and others.
c. The Reserve Bank should identify actual and potential
interactions between the institution's use of an account and services
and (other parts of) the payment system.
i. The extent to which the institution's use of an account and
services might restrict funds from being available to support the
liquidity needs of other institutions should also be considered.
d. The institution must, in the Reserve Bank's judgment:
i. Be in sound financial condition, including maintaining adequate
capital to continue as a going concern and to meet its current and
projected operating expenses under a range of scenarios.
ii. Demonstrate the ability, on an ongoing basis (including during
periods of idiosyncratic or market stress), to meet all of its
obligations in order to remain a going concern and comply with its
agreement for an account and services, including by maintaining:
A. Sufficient liquid resources to meet its obligations to the
Reserve Bank under applicable agreements, Operating Circulars, and
Board policies;
B. The operational capacity to ensure that such liquid resources
are available to satisfy all such obligations to the Reserve Bank on a
timely basis; and
C. Settlement processes that are designed to appropriately monitor
balances in its account on an intraday basis, to process transactions
through its account in an orderly manner and comply with any balance
requirements by the end of the business day.\10\
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\10\ See id.
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iii. Have in place an operational risk framework designed to ensure
operational resiliency against events associated with processes,
people, and systems that may impair the institution's payment system
activities. This framework should consider
[[Page 30650]]
internal and external factors, including operational risk inherent in
the institution's business model, risk that might arise in connection
with its use of the payment system, and cyber-related risks. At a
minimum, the framework should:
A. Identify the range of operational risks presented by the
institution's business model (e.g., cyber vulnerability, operational
failure, resiliency of service providers), and establish sound
operational risk management objectives;
B. Establish sound governance arrangements, rules, and procedures
to oversee the operational risk management framework;
C. Establish clear and appropriate rules and procedures to carry
out the risk management objectives;
D. Employ the resources necessary to achieve its risk management
objectives and implement effectively its rules and procedures,
including, but not limited to, sound processes for physical and
information security, internal controls, compliance, program
management, incident management, business continuity, audit, and well-
qualified personnel.
4. Provision of an account and services to an institution should
not create undue risk to the stability of the U.S. financial system.
a. The Reserve Bank should incorporate, to the extent possible, the
assessments of an institution by state and/or federal supervisors into
its independent assessment of the institution's risk profile.
b. The Reserve Bank should determine, in consultation with the
other Reserve Banks and the Board as appropriate, whether the access to
an account and services by an institution itself or a group of like
institutions could introduce financial stability risk to the U.S.
financial system.
c. The Reserve Bank should confirm that the institution has an
effective risk management framework and governance arrangements for
managing liquidity, credit, and other risks that may arise in times of
financial or economic stress.
d. The Reserve Bank should consider the extent to which, especially
in times of financial or economic stress, liquidity or other strains at
the institution may be transmitted to other segments of the financial
system.
e. The Reserve Bank should consider the extent to which, especially
during times of financial or economic stress, access to an account and
services by an institution itself (or a group of like institutions)
could affect deposit balances across U.S. financial institutions more
broadly and whether any resulting movements in deposit balances could
have a deleterious effect on U.S. financial stability.
i. Balances held in Reserve Bank accounts present no credit or
liquidity risk, making them very attractive in times of financial or
economic stress. As a result, in times of stress, investors that would
otherwise provide short-term funding to non-financial firms, financial
firms, and state and local governments could rapidly withdraw that
funding and instead deposit their funds with an institution holding
mostly central bank balances. If the institution is not subject to
capital requirements similar to a federally insured institution, it can
more easily expand its balance sheet during times of stress; as a
result, the potential for sudden and significant deposit inflows into
that institution is particularly large, which could disintermediate
other parts of the financial system, greatly amplifying stress.
5. Provision of an account and services to an institution should
not create undue risk to the overall economy by facilitating activities
such as money laundering, terrorism financing, fraud, cybercrimes,
economic or trade sanctions violations, or other illicit activity.
a. The Reserve Bank should incorporate, to the extent possible, the
assessments of an institution by state and/or federal supervisors into
its independent assessment of the institution's risk profile.
b. The Reserve Bank should confirm that the institution has a BSA/
AML compliance program consisting of the components set out below and
in relevant regulations.\11\
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\11\ Refer to 12 CFR 208.62 and 63, 12 CFR 211.5(k), 5(m),
24(f), and 24(j), and 12 CFR 225.4(f) (Federal Reserve); 12 CFR
326.8 and 12 CFR part 353 (FDIC); 12 CFR 748.1-2 (NCUA); 12 CFR
21.11, and 21, and 12 CFR 163.180 (OCC); and 31 CFR 1020.210(a) and
(b), and 31 CFR 1020.320 (FinCEN), which are controlling.
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i. For these purposes, the Reserve Bank should confirm that the
institution's BSA/AML compliance program contains the following
elements: \12\
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\12\ Reserve Banks may reference the FFIEC BSA/AML Manual. These
Guidelines may be updated to reflect any changes to relevant
regulations.
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A. A system of internal controls, including policies and
procedures, to ensure ongoing BSA/AML compliance;
B. Independent audit and testing of BSA/AML compliance to be
conducted by bank personnel or by an outside party;
C. Designation of an individual or individuals responsible for
coordinating and monitoring day-to-day compliance (BSA compliance
officer);
D. Ongoing training for appropriate personnel, tailored to each
individual's specific responsibilities, as appropriate;
E. Appropriate risk-based procedures for conducting ongoing
customer due diligence to include, but not limited to, understanding
the nature and purpose of customer relationships for the purpose of
developing a customer risk profile and conducting ongoing monitoring to
identify and report suspicious transactions and, on a risk basis, to
maintain and update customer information;
c. The Reserve Bank should confirm that the institution has a
compliance program designed to support its compliance with the Office
of Foreign Assets Control (OFAC) regulations at 31 CFR Chapter V.\13\
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\13\ Reserve Banks may reference the OFAC section of the FFIEC
BSA/AML Manual. These guidelines may be updated to reflect any
changes to relevant regulations.
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i. For these purposes, the Reserve Bank may review the
institution's written OFAC compliance program, provided one has been
created, and confirm that it is commensurate with the institution's
OFAC risk profile. An OFAC compliance program should identify higher-
risk areas, provide for appropriate internal controls for screening and
reporting, establish independent testing for compliance, designate a
bank employee or employees as responsible for OFAC compliance, and
create a training program for appropriate personnel in all relevant
areas of the institution.
6. Provision of an account and services to an institution should
not adversely affect the Federal Reserve's ability to implement
monetary policy.
a. The Reserve Bank should incorporate, to the extent possible, the
assessments of an institution by state and/or federal supervisors into
its independent assessment of the institution's risk profile.
b. The Reserve Bank should determine, in consultation with the
other Reserve Banks and the Board as appropriate, whether access to an
account and services by an institution itself or a group of like
institutions could have an effect on the implementation of monetary
policy.
c. The Reserve Bank should consider, among other things, whether
access to an account and services by the institution or group of like
institutions could affect the level and variability of the demand for
and supply of reserves, the level and volatility of key policy interest
rates, the structure of key short-term funding markets, and the overall
size of the consolidated balance sheet of
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the Reserve Banks. The Reserve Bank should consider the implications of
providing an account to the institution in normal times as well as in
times of stress. This consideration should occur regardless of the
current monetary policy implementation framework in place.
Section 2: Reserve Bank Account Options
The Reserve Banks offer two account types to legally eligible
institutions: Master Accounts and Payment Accounts.\14\ A Master
Account is a general-purpose account maintained by a Reserve Bank for a
legally eligible institution as further described in Part IV of the
Federal Reserve Policy on Payment System Risk (PSR Policy). A Payment
Account is a special-purpose account maintained by a Reserve Bank for a
legally eligible institution for the purpose of clearing and settling
payments activity of the institution and its customers subject to the
terms set forth in Part IV of the PSR Policy, the Board's Regulation A,
and the Board's Regulation D.
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\14\ As explained in footnote 7, requests to be an agent or
participant in an excess balance account will also be reviewed
pursuant to these guidelines. Excess balances accounts are not
discussed here as they may not be used for general payments or other
activities. 12 CFR 204.10(d). For purposes of these guidelines,
Master Accounts and Payment Accounts are distinct from the accounts
that Reserve Banks provide (i) as depository and fiscal agent, such
as those provided for the Treasury and for certain government-
sponsored entities (12 U.S.C. 391, 393-95, 1823, 1435), (ii) to
certain international organizations (22 U.S.C. 285d, 286d, 290o-3,
290i-5, 290l-3), (iii) to designated financial market utilities (12
U.S.C. 5465), and (iv) pursuant to the Board's Regulation N (12 CFR
part 214), and joint accounts described in the Board's Guidelines
for Evaluating Joint Account Requests.
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Section 3: Review Frameworks
The review framework in this section is meant to serve as a guide
to the level of due diligence and scrutiny to be applied by Reserve
Banks to access requests from different types of institutions. Although
institutions in a higher tier will on average face greater due
diligence and scrutiny than institutions in a lower tier, a Reserve
Bank has the authority to grant or deny an access request by an
institution in any of the three tiers, based on the Reserve Bank's
application of the principles in Section 1 to that particular
institution.
As discussed above, an institution's access request will be
reviewed on a case-by-case, risk-focused basis and the tiers are
designed to provide additional transparency into the expected review
process based on key characteristics.
1. Tier 1: Eligible institutions that are federally insured.\15\
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\15\ See 12 U.S.C. 1813(c)(2) (defining ``insured depository
institution'' for purposes of the Federal Deposit Insurance Act) and
12 U.S.C. 1752(7) (defining ``insured credit union'' for purposes of
the Federal Credit Union Act).
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a. As federally insured depository institutions, Tier 1
institutions are already subject to a standard, strict, and
comprehensive set of federal banking regulations.
b. In addition, for most Tier 1 institutions, detailed regulatory
and financial information would in most cases be readily available,
often in public form.
c. Accordingly, access requests by Tier 1 institutions will
generally be subject to a less intensive and more streamlined review.
d. In cases where the application of the Guidelines to Tier 1
institutions identifies
[…truncated; see source link]Indexed from Federal Register on May 26, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.