BANKREGWIRE

Working Paper · Payments Desk

Working Paper № 26-03 · June 2026 · Banking Regulation / Reserve Bank Access

The Federal Reserve's Payment Account proposal

A new optional special-purpose account at the Reserve Banks, layered onto the 2022 Account Access Guidelines with a temporary pause on Tier 3 decisions. What it changes, what it doesn't, and how it arrived.

PreparedFinancial Services Policy

Board actionMay 20, 2026

Federal RegisterMay 26, 2026

Comments closeJuly 27, 2026

Vote6–1 (Barr dissent)

The Board of Governors has proposed a new, optional Payment Account at the Reserve Banks for institutions clearing and settling payment activity. The package consists of three companion Federal Register notices — revisions to the Policy on Payment System Risk (PSR Policy), an amendment to Regulation A, and an amendment to Regulation D¹ — together establishing a standardized, lower-risk account type with a $1 billion closing balance ceiling, zero interest, no discount window access, no intraday credit, restricted services excluding FedACH, and a 90-day review target.²

The proposal creates a parallel access lane but leaves intact the three-tier review framework adopted in 2022.³ Reserve Banks are asked to pause all Tier 3 decisions pending policy completion, with no published end date.⁴ Governor Barr dissented on AML/BSA examination-authority grounds; Governor Cook supported, framing the action as a structured framework for innovation.⁵ The Board's vote followed by one day a May 19 executive order directing comprehensive review of Reserve Bank account access for uninsured and nonbank firms.⁶

Bottom line — For state-chartered, uninsured institutions in Tier 3, the proposal opens a new route but leaves the primary route closed and now temporarily frozen. The most consequential question for the comment period is whether the discretionary illicit-finance terms in proposed Part IV provide sufficient AML/BSA oversight without direct Federal Reserve examination authority.

Part I

Key changes

The Board's May 20 action moved three companion notices into the Federal Register: revisions to the Policy on Payment System Risk (PSR Policy), an amendment to Regulation A, and an amendment to Regulation D. Together they create a new optional account type — the Payment Account — sitting alongside the Master Account with a standardized, risk-mitigating set of terms designed to support a faster review.¹

The three instruments

PSR Policy / OP-1878

New Part IV

Defines account types, codifies Payment Account terms, sets Closing Balance Limit framework.⁷

Regulation A / R-1892

No discount window

Specifies that Payment Account holders are ineligible for primary, secondary, or seasonal credit under 12 CFR § 201.4.⁸

Regulation D

Zero interest

Excludes Payment Account balances from IORB; bars EBA participation under 12 CFR Part 204.⁹

What a Payment Account is

A special-purpose, optional Reserve Bank account for the clearing and settlement of the holder's payment activity. Statutory eligibility is unchanged — the same test under sections 13(1), 13(14), and 19(b)(7) of the Federal Reserve Act applies as for a Master Account.¹⁰ The Board anticipates most requesters will be Tier 2 or Tier 3 institutions, although any tier may apply. The terms are standardized to produce a lower residual risk profile, which the Board uses to justify a 90-day review target.

Payment Account vs. Master Account

Table 1 — Standard terms compared
Term	Payment Account	Master Account
Closing balance	Set by the Reserve Bank from payment flows; $1B ceiling	No cap
Intraday credit	Prohibited; overdrafts auto-rejected	Available, collateralized or uncollateralized
Services	Fedwire Funds, FedNow, NSS, Fedwire Securities (free-of-payment only)	All Reserve Bank financial services
FedACH	Not available	Available
Discount window	Ineligible	Eligible if otherwise qualifies
Interest on balances	Zero	IORB rate if eligible
OC-1 Correspondent / Respondent	Neither role permitted	Either role permitted subject to review
Excess Balance Account	Cannot participate	May act as agent or participant
Review timeline	90 calendar days from complete file	45 days for Tier 1; no target for Tier 2 / Tier 3
Standard terms	Codified, risk-mitigating	None codified; Reserve Bank discretion governs

Changes from the December 2025 RFI

Renamed"Overnight balance limit" became the Closing Balance Limit; it applies only at the Federal Reserve's close of business, not throughout the night.¹¹

RevisedCap was the lesser of $500M or 10% of total assets; now an activity-based limit set per institution by the Reserve Bank, with a $1B ceiling. Distributional analysis of five years of Master Account closing balances supports the ceiling: ~97% fell at or below $1B.¹²

Added45-day review target for any Tier 1 request, Master or Payment.

AddedNon-exhaustive list of discretionary illicit-finance terms (third-party assessments, attestations, audit reports, periodic check-ins, enforcement notifications).¹³

AddedRequest to Reserve Banks to pause decisions on Tier 3 access requests until policy development completes.⁴

AddedExplicit prohibition on Payment Account holders acting as OC-1 Correspondent or OC-1 Respondent.¹⁴

AddedOne-account rule codified in proposed Part IV — an institution may hold a Master or a Payment Account, not both, except in narrow transitional cases.

Board reasoning on each term

Closing Balance Limit

Five-year distributional analysis supports the $1B ceiling. Combined with zero interest, the cap is the Board's two-lever tool for controlling balance-sheet drag and discouraging Payment Accounts from serving as a store of value.

FedACH exclusion

FedACH commingles credit-push and debit-pull batches with multi-day return windows. The Board concluded there is no way to admit Payment Accounts without either accepting unmitigated credit risk or restricting debit receipts in a way that would break network rules.¹⁵

No discount window

Most Payment Account holders are expected to be uninsured, subject to varied insolvency regimes, and outside prudential frameworks supporting discount window credit. The Board treats this as a consistent, transparent risk mitigant across heterogeneous applicants.⁸

No structured on-ramp

A Payment Account does not signal future Master Account approval. A holder seeking a Master Account must submit a new request and undergo full Guidelines review; prior Reserve Bank experience "may inform" but is not committed to a defined pathway.

Specific comments the Board requested

The Board flagged seven question areas, including: whether to codify the Closing Balance Limit in Regulation D rather than the PSR Policy, whether $1B is the right ceiling, whether a Payment Account holder should be permitted to use FedNow as an OC-1 Respondent, and whether non-federally-insured Payment Account applicants should face heightened illicit-finance requirements such as a third-party BSA/AML assessment, an attestation that they qualify as a "bank" under the BSA, or a Reserve Bank determination that their supervisory regime is comparable to that of a federally insured institution.¹⁶

Part II

Issues & the tier framework

The Payment Account creates a new lane with standardized terms and a 90-day target, but it sits inside — and does not redesign — the three-tier review framework adopted in 2022. For Tier 2 and Tier 3 institutions seeking Master Accounts, the existing untimed and discretionary process continues. For Tier 3, decisions are now suspended.³

The three tiers, with Payment Account overlay

Tier 1

Federally insured institutions. Master Account requests receive the streamlined review. A new 45-day timeline added in this proposal applies equally to Master or Payment Account requests from Tier 1. Practical effect of the Payment Account on this population is limited — Tier 1 institutions rarely have reason to forgo FedACH and discount window access.

Tier 2

Non-federally insured, but supervised at the institution or holding-company level by a federal banking agency. Intermediate review. Master Account review remains untimed; only the Payment Account lane gets the 90-day target. This is likely the most natural user base for the new account type.

Tier 3

All other legally eligible institutions — generally state-chartered uninsured entities whose holding company is not subject to Federal Reserve oversight. Strictest scrutiny under the existing Guidelines, which courts and observers have characterized as functionally near-prohibitive.¹⁷ Master Account review remains untimed and open-ended. Reserve Banks are now asked to pause Tier 3 decisions entirely until policy development is complete.

Issues raised by the proposal's structure

The Tier 3 pause is a de facto access freeze. Pending Tier 3 applicants — including state-chartered uninsured institutions that may have been in the queue for years — see decisions suspended with no fixed end date in the published text. The staff memo recommends an end on or before December 31, 2026, but that target was not carried into the proposal.⁴ A consultation carve-out for "extraordinary or unusual circumstances" exists, but standards for invocation are unspecified.

ii.

The bifurcated timeline reinforces unequal treatment. The proposal codifies a 45-day target for Tier 1 (Master or Payment) and a 90-day target for any Payment Account, but declines to set any timeline for Tier 2 or Tier 3 Master Account requests, citing the "variety of charter types, business models, regulatory regimes." That is precisely the population most affected by review opacity today.

iii.

The Payment Account does not address underlying tiering construction. The 2022 framework drew sustained objection — including from state regulators — that Tier 2 effectively favors federally chartered uninsured institutions, because federal charter automatically pulls a holding company into FRS oversight, while equivalent state-chartered structures fall into Tier 3.¹⁸ The Payment Account creates a new lane but leaves the tier construction in place.

iv.

No structured on-ramp from Payment Account to Master Account. A successful Payment Account holder with a clean operating record must submit a new Master Account request and undergo a full review. The Board acknowledges prior Reserve Bank experience may "inform" that review but commits to nothing. This limits the Payment Account's utility as a graduation path and leaves the strict-scrutiny problem intact for any institution that ultimately needs broader services.

FedACH exclusion is the binding constraint for many real-world use cases. Payroll, bill pay, and most B2B flows depend on ACH. Without FedACH, a Payment Account holder still needs a correspondent for those flows — partially recreating the intermediary dependence the proposal frames itself as relieving.¹⁵

vi.

Illicit-finance terms risk duplicating primary supervisor work. The non-exhaustive list reads as parallel supervisory activity. State-chartered institutions already operate full BSA/AML programs subject to their state supervisor's examination, and the proposal leaves unclear how much weight a Reserve Bank should give those existing exams versus building an independent record.¹³

vii.

State regulator coordination is not codified. Reserve Banks "should" incorporate primary supervisor assessments "to the extent possible," but the proposal does not require formal information-sharing protocols or consultation with state supervisors for state-chartered Payment Account applicants. Without that, the dual banking system continues to operate at the periphery of the access review.

viii.

Closing Balance Limit calibration mechanics are opaque. Reserve Banks set individual limits "based on expected payment flows," but the proposal gives no public benchmark, no minimum floor, no published methodology, and no transparency obligation. Two similar institutions in different Districts could plausibly receive materially different limits.¹²

ix.

Tier 2 and Tier 3 Master Account requests remain in the same opaque regime. An applicant that needs FedACH, intraday credit, or correspondent capability still faces the existing untimed, discretionary, denial-prone process. If Tier 3, decisions are paused on top of that.

The one-account rule limits structural options. Proposed Part IV codifies that an institution may hold either a Master Account or a Payment Account, not both. An institution that operates traditional correspondent activity through a Master Account but wants a separate Payment Account for a tokenization or stablecoin platform cannot have both — it must choose or hold via separate legal entities.

Connection to the broader access debate

The Custodia, PayServices, and TNB denials established that strict-scrutiny review of Tier 3 institutions can operate as a near-categorical bar.¹⁷ The Payment Account does not change that legal architecture. It creates a parallel, lower-risk lane with standardized terms that should be faster — but it leaves intact the underlying tiered review for Master Accounts and adds a temporary pause on Tier 3 decisions. The net effect for state-chartered uninsured institutions seeking Reserve Bank services is mixed: a new route may open, but the main road remains closed and is now temporarily under a stop sign.

Part III

Timeline

The Payment Account proposal is the most recent step in a five-year sequence on Reserve Bank account access. It follows two years of contested Master Account denials, an executive order issued one day before the Board action, and a "pilot" approval already granted by the Kansas City Fed earlier this year.

The framework era — 2021–2022

May 2021

Initial Account Access Guidelines proposed

The Board issued an initial proposal for a set of principles Reserve Banks would use to evaluate requests for Master Accounts and services. The proposal followed a period of growing requests from non-traditional institutions.

March 2022

Supplemental notice — three-tier framework introduced

The Board issued a supplemental notice adding the three-tier review framework that remains in place today. State bank supervisors objected to the tier construction on dual-banking-system grounds during the comment period.¹⁸

August 15, 2022

Final Account Access Guidelines adopted

The Board finalized the Guidelines largely as proposed, with a narrower Tier 2 definition for federally chartered uninsured institutions in response to comments. The six principles and tiered review framework took effect.³

The denial era — 2023–2024

January 27, 2023

FRBKC denies Custodia Bank's master account application

The Federal Reserve Bank of Kansas City classified Custodia — a Wyoming special-purpose depository institution — as Tier 3 and denied its application after a roughly two-year review. The denial became a touchstone for the access debate and led to litigation.¹⁷

2023–2024

Court rulings on Custodia and PayServices

District courts declined to order the Reserve Banks to grant Master Accounts to either institution. Observers concluded that under the Guidelines, strict scrutiny of Tier 3 banks functions in practice as a near-categorical bar.

The Payment Account era — 2025

October 21, 2025

Waller proposes a "skinny" master account

At the Board's first Payments Innovation Conference, Governor Christopher Waller proposed exploring a special-purpose "payment account" tailored to payments innovators. He asked staff to develop the concept. This is the direct origin of the current proposal.¹⁹

December 23, 2025

Board publishes the Payment Account RFI

A request for information on a Payment Account prototype: ineligible for discount window or intraday credit, subject to an overnight balance limit (the lesser of $500M or 10% of total assets), no interest on balances. 45-day comment period. The Board received 72 comment letters.¹¹

The 2026 sequence

March 4, 2026

FRBKC approves a limited account for Kraken Financial

The same Reserve Bank that denied Custodia approved a limited-purpose account for Kraken Financial, another Wyoming special-purpose depository institution. Vice Chair for Supervision Bowman subsequently described the approval as a "pilot" for nonbank access to Federal Reserve payment infrastructure — recontextualizing the decision as test data for the formal proposal then in development.²⁰

May 7, 2026

Staff memo to the Board

Division of Reserve Bank Operations, Monetary Affairs, and Legal staff recommended publication of three Federal Register notices implementing the Payment Account. The memo also recommended the Tier 3 decision pause, with a suggested end date "on or before December 31, 2026" — language that did not survive into the published proposal.⁴

May 13, 2026

Kevin Warsh confirmed as Federal Reserve Chair

Warsh was confirmed one week before the Board action. The Payment Account proposal moved forward in his first full week as Chair. His policy posture on master account access remains an open variable for how a final rule might evolve.

May 19, 2026

Executive order on Reserve Bank access

The White House issued an executive order directing the Federal Reserve to conduct a comprehensive evaluation of the legal, regulatory, and policy framework governing access to Reserve Bank payment accounts and services by uninsured depository institutions and nonbank financial companies, including those engaged in digital assets and other novel financial activities. The Board action followed one day later.⁶

May 20, 2026

Board votes 6–1 to issue the proposal for comment

The Board approved publication of the three companion notices (PSR Policy, Regulation A, Regulation D). Governor Barr dissented on AML/BSA examination-authority grounds. Governor Cook issued a supporting statement inviting comment on systemic-impact and illicit-finance design questions.⁵

May 26, 2026

Federal Register publication

Three notices appear: OP-1878 (PSR Policy revisions), R-1892 (Regulation A), and R-1893 (Regulation D). Comment period opens.¹

Ahead

July 27, 2026

Comment period closes

62-day window from publication. The Barr dissent signals that AML/BSA comment design is the most consequential pressure point for final-rule revisions.

~Dec. 31, 2026

Tier 3 pause: tentative end

The staff memo recommended this date as the outside boundary for the temporary Tier 3 decision pause. It is not codified in the proposal — the published text ties the pause to "completion of the policy development process" without a fixed end date.

Part IV

Federal Reserve leadership

The Board action drew one written supporting statement (Cook) and one written dissent (Barr). The substantive split is narrow: every public Board statement supports the Payment Account concept. The disagreement is on the depth of AML/BSA controls and whether the Federal Reserve has — or should have — direct examination authority over uninsured Payment Account holders.

Governor Lisa D. Cook — statement of support

Voted to issue Cook supports seeking comment, framing the Payment Account as a "structured framework" that can implement innovative business models while mitigating risk to individual Reserve Banks.²¹

Key points she emphasized

The evolution of institution types seeking access since the 2022 Guidelines, and growing Reserve Bank experience with special-purpose depository institutions, support tailored standards now.
Any expansion of direct access requires "careful and ongoing attention to the risk profiles of the requesting institutions and the potential systemic implications."
Specifically invites comment on the systemic impact of granting clearing and settling capabilities to legally eligible firms without deposit insurance and not subject to comprehensive federal oversight.
Separately invites comment on additional approaches to mitigate illicit-finance risk beyond what the proposal lists.

Striking the appropriate balance between removing unnecessary barriers to innovation, while also protecting the integrity of our payment system.— Governor Cook, May 20, 2026

Governor Michael S. Barr — dissent

Dissent Barr supports the Payment Account concept in principle but cannot support this set of proposals because, in his view, the AML/BSA safeguards remain inadequate.²²

Key points he raised

Concedes the proposal has progressed since the December 2025 RFI on illicit finance — but says protections are still not enough.
Specific objection: there are no provisions for the Federal Reserve to engage in examination and inspection of AML/BSA compliance procedures at Payment Account holders.
The non-exhaustive list of discretionary illicit-finance terms in proposed Part IV (third-party assessments, attestations, audit reports, periodic meetings) does not, in his view, equate to direct Federal Reserve examination authority.
Signals he will engage with public comments on how to design and implement stronger safeguards — leaving room for revisions before any final rule.

I cannot support this set of proposals because it does not provide sufficiently specific and robust safeguards to protect against the accounts being used for money laundering and terrorist financing by institutions we do not supervise.— Governor Barr, May 20, 2026

Context from other Board members

Governor Christopher J. Waller

Concept origin

Proposed the "skinny master account" concept at the Board's October 2025 Payments Innovation Conference and asked staff to explore a payment account tailored to payments innovators, including crypto-native firms. The current proposal is the direct outgrowth of that initiative.¹⁹

Vice Chair for Supervision Bowman

Kraken pilot framing

Has publicly described the Federal Reserve Bank of Kansas City's March 2026 approval of a limited account for Kraken Financial — a Wyoming special-purpose depository institution — as a "pilot" for nonbank access to Federal Reserve payment infrastructure, predating this formal proposal.²⁰

Chair Kevin Warsh

Newly confirmed

Confirmed as Chair on May 13, 2026, one week before the Board action. The proposal moved forward in his first full week. His policy posture on master account access is an open variable for how a final rule might evolve.

Executive Order context

May 19, 2026

Directed the Federal Reserve to comprehensively review the legal, regulatory, and policy framework for Reserve Bank account and service access by uninsured depository institutions and nonbank financial companies, including digital-asset firms. The Board action followed one day later.⁶

What to watch

Every public Board statement supports the Payment Account concept; the active disagreement is on AML/BSA depth and Federal Reserve examination authority over uninsured Payment Account holders. The comment period closing July 27 will surface the operational details that get layered on top of the framework — particularly around illicit-finance terms and Closing Balance Limit calibration. Commenters aligned with Barr's concern are likely to focus on the examination question specifically, and on whether the discretionary information requests in proposed Part IV give the Federal Reserve enough visibility into AML programs at non-federally-supervised holders.

Sources & primary citations

Federal Reserve System, Proposed Revisions to the Federal Reserve Policy on Payment System Risk and the Guidelines for Account and Services Requests, 91 Fed. Reg. 30627 (May 26, 2026), Docket No. OP-1878; companion notices Docket No. R-1892 (Regulation A, 12 CFR Part 201) and Docket No. R-1893 (Regulation D, 12 CFR Part 204), same publication date.
Proposed PSR Policy Part IV, "Policy on Reserve Bank Accounts and Services," set forth at 91 Fed. Reg. 30636–37 (terms summary table). Review timeline at proposed Account Access Guidelines, Section 4.
Board of Governors, Guidelines for Evaluating Account and Services Requests, adopted August 15, 2022. Six principles and three-tier review framework retained unchanged by this proposal.
Staff memo to the Board of Governors, "Request for Comment on Proposed Establishment of a Payment Account" (May 7, 2026) at n.3 (recommending pause "on or before December 31, 2026"). Published proposal tied pause to completion of policy development process without a fixed end date.
Federal Reserve Board, "Federal Reserve Board requests public comment on a proposal to establish a 'payment account'…" press release, May 20, 2026; vote and dissent recorded at Board Votes.
Executive Order of May 19, 2026, "Integrating Financial Technology Innovation Into Regulatory Frameworks," directing Federal Reserve evaluation of the legal, regulatory, and policy framework governing access to Reserve Bank accounts and services by uninsured depository institutions and nonbank financial companies, including those engaged in digital assets.
Proposed PSR Policy Part IV, Section B (Payment Account Terms), 91 Fed. Reg. 30640–41.
Proposed amendments to 12 CFR § 201.2 (defining "payment account") and § 201.3 (precluding lending under § 201.4 to a depository institution holding a payment account). 91 Fed. Reg. 30498–30503.
Proposed amendments to Regulation D, 12 CFR Part 204, excluding Payment Account balances from interest-bearing treatment and excluding Payment Account holders from Excess Balance Account participation.
Federal Reserve Act §§ 13(1), 13(14), 19(b)(7), 12 U.S.C. §§ 342, 347d, 461(b)(7). Eligibility analysis at 91 Fed. Reg. 30628.
Board of Governors, Request for Information on Payment Account Prototype, 90 Fed. Reg. 60096 (December 23, 2025). 45-day comment period; 72 comment letters received.
91 Fed. Reg. 30640. Board distributional analysis of five years of Master Account closing balances: ~97% fell at or below $1B.
Proposed PSR Policy Part IV, Section B (illicit-finance risk mitigants), 91 Fed. Reg. 30639. Non-exhaustive list of discretionary terms.
Proposed PSR Policy Part IV, Section B (account usage restrictions). Reserve Bank Operating Circular No. 1 (OC 1) defines "Correspondent" and "Respondent."
91 Fed. Reg. 30630–31 (Board response on FedACH access). Discussion of credit-push / debit-pull asymmetry and ACH network rule constraints.
91 Fed. Reg. 30642 (Section IV, Request for Comment). Seven specific question areas.
Custodia Bank, Inc. v. Federal Reserve Board, U.S. District Court for the District of Wyoming, denying motion to compel Master Account; companion litigation involving PayServices and TNB USA, Inc.
Public comment record on the supplemental notice for the Account Access Guidelines, Docket No. OP-1747 (comments received April 2022), including comment letters from state bank supervisors raising dual-banking-system concerns regarding the proposed tiered review framework.
Governor Christopher J. Waller, speech, "Embracing New Technologies and Players in Payments," Board of Governors Payments Innovation Conference, October 21, 2025.
Federal Reserve Bank of Kansas City press release, "Federal Reserve Bank of Kansas City Approves Limited Account" (March 4, 2026). Vice Chair for Supervision Bowman characterization in subsequent public remarks.
Statement on Payment Account Proposal by Governor Lisa D. Cook, May 20, 2026.
Statement on Payment Account Proposal by Governor Michael S. Barr, May 20, 2026.

Working Paper № 26-03 · BankRegWire · Payments Desk · Current as of June 1, 2026. Subject to revision as comment letters and Federal Reserve clarifications appear. All citations to primary sources; no secondary commentary relied upon for material findings. Informational analysis, not legal advice.