Bank groups ‘deeply concerned’ after Fed grants Kraken master account

U.S. banking industry groups are pushing back after the Federal Reserve approved a master account for Kraken Financial, warning the move could allow crypto-focused institutions to access the central bank’s payment rails without the same regulatory safeguards applied to traditional banks.

The backlash comes as the Federal Reserve continues to develop a broader framework for these so-called “skinny master accounts,” a limited-access structure the central bank has been considering for nontraditional financial institutions.

Within hours of Wednesday’s announcement, major banking trade groups released statements criticizing the decision.

Banks speak out on Kraken master account

The Bank Policy Institute, which represents many of the largest U.S. banks, said it was “deeply concerned” that the approval appeared to come before the Federal Reserve finalized its policy framework for so-called “limited purpose” or “skinny” master accounts.

“We are deeply concerned that the Federal Reserve Bank of Kansas City has approved an account request for a ‘limited purpose’ master account — which appears to be a ‘skinny’ account — before the Federal Reserve Board has finalized its policy framework for those accounts,” said Paige Pidano Paridon, the group’s co-head of regulatory affairs.

The organization also criticized what it described as a lack of transparency.

“It was issued with no transparency into the process for approval or the risk mitigants that have been imposed to address the very significant risks it raises,” Paridon said.

Community banking groups echoed similar concerns.

“ICBA and the nation’s community banks are very concerned with the Federal Reserve Bank of Kansas City’s approval of a master account for Kraken Financial,” wrote Independent Community Bankers of America President and CEO Rebeca Romero Rainey in a separate statement.

“Granting nonbank entities and crypto institutions access to the master accounts traditionally limited to highly regulated insured depository institutions poses risks to the banking system,” she added.

‘A huge deal’

The backlash comes as the Federal Reserve is still developing a broader framework for “skinny” master accounts — a limited version of a central bank account that provides access to payment systems but excludes services such as interest on balances or borrowing from the discount window.

Federal Reserve Governor Christopher Waller said last month that the central bank hopes to roll out the slimmed-down account structure later this year.

Meanwhile, some crypto market participants see Kraken’s approval as a major shift in financial infrastructure.

“The Fed granting a ‘skinny master account’ to Kraken is a huge deal,” ProCap CIO Jeff Park wrote on X. “It signals there is finally an opening to build a non-deposit banking business that isn’t fundamentally tied to lending.”