Banks push back as Kraken gains access to Federal Reserve Payment system

A U.S. banking industry group has criticized the Federal Reserve’s decision to grant Kraken Financial a limited-purpose master account. 

It warns that the move could introduce risks to the payment system and potentially set a precedent for crypto-focused institutions seeking access to the central bank’s infrastructure.

The criticism follows the Federal Reserve Bank of Kansas City’s approval of a limited-purpose account for Kraken. The account was approved for an initial one-year term under the Federal Reserve’s Account Access Guidelines.

Banking lobby questions the decision

The Bank Policy Institute [BPI], which represents major U.S. banks, said the approval appears to grant what it described as a “skinny” master account before the Federal Reserve Board has finalized its broader policy framework governing such access.

Paige Pidano Paridon, BPI’s co-head of regulatory affairs, said the move raises concerns about transparency and regulatory consistency across the Federal Reserve system.

Paridon said in a statement:

The group also questioned whether consistent standards are being applied across the Fed’s regional reserve banks and whether safeguards are in place to address risks, such as anti-money laundering compliance.

Concerns over uninsured crypto banks

Kraken Financial operates as a Wyoming Special Purpose Depository Institution [SPDI]. This is a type of state-chartered institution designed to provide banking services to digital asset firms.

Unlike traditional banks, SPDIs are not federally insured, which BPI said could create additional risks if such institutions gain access to the Federal Reserve’s core settlement infrastructure.

The Kansas City Fed said the account was approved following a risk-based review of Kraken Financial’s business model and compliance with applicable laws and regulations.

Under the Fed’s guidelines, the firm is categorized as a Tier 3 entity, meaning the approval includes restrictions tailored to its risk profile.

Growing tension between banks and crypto firms

The dispute reflects broader tensions between the traditional banking sector and digital asset companies over access to financial infrastructure.

In recent years, several crypto firms have accused banks of “debanking” crypto-related accounts. They argued that financial institutions have been reluctant to serve the sector due to regulatory uncertainty.

At the same time, banking groups have pushed for stricter oversight of the crypto industry and raised concerns about risks associated with digital asset activities.

The issue has also surfaced in Washington’s ongoing debate over crypto legislation. On 3 March, Donald Trump criticized banks for allegedly undermining digital asset reforms. 

He warned that delays to market structure legislation, such as the Clarity Act, could push crypto innovation overseas.

Against that backdrop, the Federal Reserve’s decision to grant Kraken direct access to its payment infrastructure has quickly become another flashpoint in the evolving relationship between banks and crypto firms.

Final Summary

• U.S. banks have criticized the Federal Reserve’s decision to grant Kraken Financial a limited-purpose master account. They cite concerns about payment-system risks and regulatory transparency.
• The approval could set a precedent for crypto firms seeking direct access to the Federal Reserve’s settlement infrastructure.