Fed opens a narrow payments door to stablecoin issuers, Arthur Hayes warns of bank fallout

Federal Reserve Governor Christopher Waller on October 21 proposed a brand new checking account that may give stablecoin issuers and crypto corporations direct entry to the Fed cost rails with out full grasp account privileges.

The announcement on the Fed’s first Funds Innovation Convention marked a reversal from the central financial institution’s cautious stance towards digital asset corporations.

Waller described the idea as a “skinny” foremost account that gives primary Fedwire and ACH connectivity whereas excluding curiosity funds, overdrafts and emergency loans. The brand new account creates a payments-only door that would reshape how stablecoin issuers settle greenback flows.

The invoice would have a steadiness cap, pay no curiosity, supply no daylight overdrafts and exclude loans with low cost phrases.

Corporations pursuing full grasp accounts, reminiscent of Custodia Financial institution, Kraken, Ripple and Anchorage Digital, may benefit from sooner approval timelines.

The convention introduced collectively about 100 personal sector innovators in what Waller described as a brand new period by which “the DeFi trade shouldn’t be considered with suspicion or disdain” however “joins the dialog about the way forward for funds.”

Slim banking and stablecoin construction

The present account breathes new life into slender banking, separating funds from the creation of credit score.

Stablecoin issuers already function as de facto slender banks, holding secured reserves and shifting cash with out making loans, however lack direct entry from the Fed and should companion with business banks to redeem tokens.

Waller’s proposal would enable eligible corporations to carry reserves instantly with the Fed, backfill tokens with central financial institution cash, and remove the friction between banks and companions that causes bottlenecks throughout stress.

Direct Fed entry would carry compliant US stablecoins nearer to the slender foreign money, lowering the chance of financial institution runs.

If reserves are held by the Fed as an alternative of business banks, tokens develop into claims on central financial institution liabilities, eliminating credit score threat.

Caitlin Lengthy, CEO of Custodia Financial institution, framed the shift as a correction to “the horrible mistake the Fed has made by banks solely blocking funds from Fed foremost accounts.”

Operational enhancements and tradeoffs

Redemption flows could be extra environment friendly if issuers posted and obtained funds instantly slightly than routing them by means of companion banks.

The advance is mechanical, with fewer steps, decrease latency, and decreased reliance on banking hours, however important throughout excessive flows when redemption queues lengthen.

Issuers redeeming and initiating transfers on companion accounts may full each paths with Fed rails, compressing settlement from hours to close real-time and eradicating the chance of a companion financial institution freezing transfers.

Stability limits will decide utility for big issuers. Tether has reserves within the tens of billions. Stricter caps may accommodate operational liquidity, however not your complete base, necessitating a cut up of reserves.

The Fed’s targets of containing affect on the steadiness sheet and limiting credit score publicity will decide the ceilings, and issuers will weigh the Fed’s direct entry to some reserves towards preserving all the things in business banks.

Ripple CEO Brad Garlinghouse argued almost every week earlier than Waller’s speech that crypto corporations that meet bank-grade AML and KYC requirements ought to be given entry to bank-level infrastructure, as CoinDesk reported.

Ripple submitted a grasp account software in 2025. Direct Fed entry would enable Ripple to settle the greenback parts of cross-border transactions with out utilizing correspondent banks.

The logic applies to exchanges and custodians that depend on banking companions for fiat trails; direct Fed connectivity removes a dependency and a bottleneck.

Arthur Hayes, co-founder of BitMEX, supplied a skeptical view:

“Think about if Tether did not depend upon a TradFi financial institution for its existence. The Fed plans to destroy business banking within the US.”

The priority is disintermediation. If massive issuers and cost processors acquire direct entry to the Fed rails, they’ll not want business banks for primary companies, eroding the deposit base whereas concentrating liquidity on the Fed.

The restrictions Waller outlined, reminiscent of no rates of interest, steadiness sheet limits and no overdrafts, are meant to assist funds innovation with out the Fed changing into the first deposit taker or taking over credit score threat on non-banks.

That is what’s altering

Waller directed Fed officers to collect suggestions from stakeholders, however didn’t present a timeline.

The GENIUS Act, which was signed into regulation in July 2025, established federal stablecoin necessities however didn’t present direct entry for the Fed.

Waller’s proposal fills that hole. Corporations with pending functions may make sooner choices. Banks with cost branches can apply first, whereas crypto-native fintechs will comply with as soon as the framework turns into extra sturdy.

The checking account formalizes crypto’s entry to the Fed’s managed infrastructure. As massive issuers purchase Fed accounts, the affect on liquidity and settlement high quality turns into systemic.

Fed-backed reserves can’t be frozen by a business financial institution or topic to middleman credit score threat, compressing settlement threat throughout stress.

The regulatory arbitrage is shrinking as offshore issuers or these unwilling to adjust to GENIUS Act requirements lose floor to US-regulated issuers providing Fed-backed tokens with structural safety advantages, consolidating the market share of compliant corporations.

Waller’s proposal opens a payment-only door to the Fed below steadiness sheet limits and extreme restrictions, revives slender banking, positions compliant stablecoins as central bank-backed devices, and creates a degree enjoying area whereas deintermediating some business banking companies.

The coverage change integrates crypto into the supervised cost system, with direct settlement lowering vulnerability and recognizing that digital asset infrastructure has moved from the margins to the core of how {dollars} transfer.