Gov. Waller: U.S. Fed to 'Embrace Disruption,' Pitches 'Skinny' Master Account Idea

U.S. Federal Reserve Gov. Christopher Waller kicked off the central bank's first payments-innovation conference by vowing the Fed will embrace the crypto sector's innovations and saying he's asked staff to explore a lighter version of the so-called "master accounts" that give financial firms access to U.S. payment rails.

"My view from the Fed from now on is embrace the disruption, don't avoid it," Waller said to open the Tuesday event. "The Fed intends to be an active part of that revolution."

Waller, who is one of the governors on the seven-member Fed board, is reportedly among President Donald Trump's potential top candidates to replace Fed Chair Jerome Powell when Powell's term is up next year. He said he suggested Tuesday's payment conference in order to get the new crypto-world innovators in the same room as the traditional payments-infrastructure incumbents.

"I believe we can and should do more to support those actively transforming the payment system," he said. "To that end, I have asked Federal Reserve staff to explore the idea of what I'm calling a payment account."

He described the idea as a "skinny" version of the full-fledged master accounts, allowing new entrants to payments a way to avoid the need for third-party relationships with institutions that have the full accounts. He suggested the lighter payment accounts "would provide access to the Federal Reserve payment rails, while controlling for various risks the Federal Reserve and the payment system to control the size of the accounts and associated impacts on the Fed's balance sheet."

They may not, for instance, pay interest on balances, come with daylight overdraft privileges or grant access to borrowing through the Fed's so-called "discount window," and they may come with balance caps. Waller said the Fed would gather input on the idea, and the industry will hear "more about this shortly."

Waller isn't the vice chair for supervision, so he's not in a position to immediately direct Fed policy moves. The current vice chair is Michelle Bowman, and the overall board is still led by Chair Powell, who was appointed by Trump to that role but quickly ran afoul of the president during Trump's first term. But Waller has shown himself a prominent crypto ally at the Fed, having also just appeared at DC Fintech Week to praise decentralized finance (DeFi) innovations.

At that same event, Ripple CEO Brad Garlinghouse lambasted Wall Street bankers' resistance to crypto firms getting Fed master accounts, which his company is among those applying for. Such accounts grant more seamless integration into the U.S. financial system and direct access to the central bank's payments systems, rather than forcing crypto-native firms to rely on outside relationships with banks.

"I wanted to send a message that this is a new era for the Federal Reserve in payments," Waller said on Tuesday. "The DeFi industry is not viewed with suspicion or scorn."He called the new Fed conference, "an acknowledgement that distributed ledgers and crypto assets are no longer on the fringes but are increasingly woven into the fabric of the payment and financial system."

Read More: Crypto Is ‘Nothing to Be Afraid of’ Says Fed Governor Chris Waller