America doesn’t need a second-class payments system

The Federal Reserve payment system is a walled garden, and rightly so; there are serious risks to opening access to unregulated or underregulated entities. But the walls should be drawn around prudent regulation, not arbitrary criteria. Fed membership should automatically mean access to Fed payment rails. Otherwise, if you build the walls in the wrong place, innovation will go offshore into foreign jurisdictions, beyond the reach of any U.S. regulator.

FDIC insurance is one of those arbitrary lines. Some point to its absence as a reason to hesitate, but that confuses two different risks. FDIC insurance protects against the risk created when a bank lends out client deposits, a risk inapplicable to a fully reserved custodial bank like Anchorage Digital Bank. Even stablecoin issuance, which more national trust banks are doing, is effectively full-reserve banking. Every stablecoin is always backed 100% by reserves, there is no fractional reserve banking being done, no asset-liability mismatch, and the risk to capital is fundamentally different. Federal Reserve Payment rail access should reflect actual risk, not assumptions carried over from a different banking model. Those differences should be reflected in how payment access is evaluated.

What is missing is not more studies to summarize longstanding banking law, but a published, uniform standard, applied the same way across the Federal Reserve’s system, so that similarly regulated banks get full access to Federal Reserve master accounts. Without them, institutions that took the harder path of federal oversight may still find themselves locked out of the very system they were regulated to join.