Ripple CLO Sees ‘Skinny’ Fed Account As Solution To Banking Concerns, Touts Benefits

Blockchain payment company Ripple, expressed support for the concept of a “skinny” Federal Reserve (Fed) payments account tailored for non-banking entities through its chief legal officer, Stuart Alderoty. This account could reportedly address concerns from traditional banks about financial stability and competitive risks.

Ripple Seeks Fed Master Account

In an interview with Reuters, Alderoty described the idea as “attractive” and suggested it could provide reassurance to conventional banks wary of increased competition from lightly-regulated non-banks. 

Ripple had previously applied for a Fed master account back in July of this year, which would enable the company to connect directly to the US central bank’s payment infrastructure, circumventing the need for intermediaries.

The Federal Reserve has historically been cautious about granting access to its payment systems to less-regulated entities, partly due to concerns from banks regarding potential risks to the financial system. 

However, in a notable policy shift, Fed Governor Christopher Waller recently indicated that the central bank is considering a “skinny” master account. 

This account would allow firms to access Fed payment services without offering other key benefits, such as interest payments, overdraft privileges, or access to emergency lending.

Even with these limitations, a “skinny” account could still facilitate Ripple’s ability to quickly convert reserves into its dollar-pegged stablecoin, RLUSD. This direct access to the Fed’s services would streamline transactions and reduce costs associated with relying on bank intermediaries. 

Industry Leaders Weigh In

Alderoty emphasized the importance of redeemability, stating that having access to a master account would provide the most efficient and transparent means to manage US dollar assets and Treasuries.

Waller clarified that the concept remains a prototype and is subject to change. He noted that the intended use of such accounts would be limited, aiming to avoid encroaching on the traditional banking sector’s operations. 

Additionally, he mentioned that these “skinny” accounts could allow crypto institutions access to Fed payment rails on a “streamlined timeline,” albeit without certain advantages like interest on account balances or overdraft options. 

However, Wall Street veteran Caitlin Long, who is also founder and CEO of Custodia, a Wyoming-chartered crypto bank that has long sought a full-fledged master account, expressed caution on the idea of such concepts. 

She pointed out that Waller’s announcement specified that the Federal Reserve’s new program would apply only to “legally eligible entities,” highlighting the importance of the details in the implementation.

At the time of writing, the firm’s associated cryptocurrency, XRP, was trading at $2.22, indicating significant losses in line with the broader crypto market’s current downturn. Over the last 24 hours and seven days, the altcoin has lost 6% and 8% in value, respectively. 

Featured image from DALL-E, chart from TradingView.com