Banking Groups Criticize Fed’s Approval of Crypto Bank Kraken, Calling It Unsafe and Inappropriate

Banking Groups Criticize Fed's Granting of Master Account to Kraken

Major banking associations have strongly objected to the Federal Reserve's recent decision to provide a master account to the cryptocurrency firm Kraken, arguing that the move is both hazardous and inconsistent with the Fed’s established guidelines.

On Wednesday, Kraken revealed it had obtained a master account from the Federal Reserve Bank of Kansas City. These accounts are crucial for banks, as they enable direct access to the Fed’s payment infrastructure and are considered vital for nationwide banking operations. Kraken is the first crypto-focused bank to achieve this milestone, although other crypto banks have been pursuing similar access for years.

Reports indicate that Kraken’s master account comes with certain restrictions, such as the inability to earn interest on reserves. This aligns with the Federal Reserve’s recent proposal of a streamlined “skinny” master account, introduced last year to expedite approvals for banks focused on innovation.

Traditional banking organizations quickly voiced their disapproval, warning that the decision could introduce significant threats to the U.S. financial system.

“Expanding direct access to Fed accounts for institutions outside the conventional regulatory structure presents considerable risks,” stated Rebeca Romero, CEO of the Independent Community Bankers of America. “The Federal Reserve should restrict master account privileges to entities that uphold the highest standards in financial services.”

Kraken Secures Access to Fed’s Core Payment Systems: WSJ

The Bank Policy Institute (BPI), which represents major financial institutions such as JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs, went even further. The group accused the Fed of breaching its own procedures by granting Kraken a skinny master account so soon after the new offering was formally announced in late December and opened for public feedback.

Although the public comment period concluded last month, BPI argued that the Fed’s approval of Kraken’s application was premature, as the skinny master account program has yet to be officially finalized or endorsed by the Fed’s board.

“This decision disregards the public input the Federal Reserve solicited on this framework, and it was made without transparency regarding the approval process or the risk controls implemented to address the substantial risks involved,” said Pidano Paridon, BPI’s co-head of regulatory affairs.

Trump Urges Congress to Move on Crypto Rules Amid Banking Clash

This controversy unfolds as tensions between the banking sector and the crypto industry intensify, particularly over stablecoin rewards—a dispute that has stalled progress on a key crypto market structure bill in Congress.

On Tuesday night, former President Donald Trump entered the debate, aligning himself with crypto advocates and asserting that the banking industry’s objections to stablecoin rewards are obstructing the advancement of the crypto legislation.