Kraken, one of the largest cryptocurrency exchanges, on Wednesday was granted a Federal Reserve master account, which would enable faster and more efficient money transfers, as well as signal the greater integration between the cryptocurrency and banking industries.
“This milestone marks the convergence of crypto infrastructure and sovereign financial rails. With a Federal Reserve master account, we can operate not as a peripheral participant in the U.S. banking system, but as a directly connected financial institution,” Arjun Sethi, the co-CEO of Payward and Kraken, said in a written statement.
Kraken is a Wyoming-chartered Special Purpose Depository Institution (SPDI), or a state-regulated bank that operates on a full-reserve basis, holding liquid assets equal to or exceeding 100 percent of client fiat deposits. Traditional banks are not obligated by the Federal Reserve to hold reserves but often do to maintain liquidity.
“Over time, this architecture could enable atomic settlement between fiat and crypto, institutional-grade cash management integrated with digital asset custody, and programmable financial products built within a fully regulated framework. This is what it looks like when crypto infrastructure matures into core financial infrastructure,” he added.
The Fed’s approval of the Kraken master account is limited, as it will grant the digital asset company the ability to speed up deposits and withdrawals for large traders and institutional clients; however, they cannot earn interest on reserves or access the Fed’s emergency lending line.
Kaken has worked more than five years in “sustained regulatory engagement,” conducting extensive examination and operational scrutiny to obtain a Fed master account. Obtaining a Fed master account allows for Kraken to have more direct access to the underbelly of the financial system, such as settling transactions on Fedwire, which will reduce dependency on correspondent banks.
Sen. Cynthia Lummis (R-WY), the chair of the Senate Banking Subcommittee on Digital Assets, cheered Kraken’s approval. She has been working for Kraken to obtain a Fed master account for years.
“This approval is a watershed moment for the digital asset industry,” Lummis said in a written statement. “The Federal Reserve has acknowledged what I’ve always said was the case — that a digital asset company can balance innovation with strong risk management. Though approval took five and a half years, the Fed’s actions — at long last — validate Wyoming’s thoughtful regulatory framework. I look forward to resolution of further pending applications in the coming weeks. I congratulate Kraken, the Kansas City Fed, and the Board of Governors for this monumental step towards making payments safer, faster, and cheaper.”
Lummis in 2022 even hounded Biden Fed nominee Sarah Bloom Raskin if she used her influence as a former Fed governor to secure a Fed master account for her bank, Reserve Trust.
“You leave Treasury, you serve on the board of Reserve Trust for two years, their first application for master account is denied, but after the first denial, you call the Federal Reserve and Reserve Trust receives a master account,” Sen. Cynthia Lummis (R-WY) told Raskin during a confirmation hearing in February 2022. “The only state-chartered trust company in the country to get one, and you walk away with a million and a half dollars. Something doesn’t smell right with the way this played out.”
“This news has been a long time coming, but Wyoming welcomes it nonetheless,” Wyoming Governor Mark Gordon said about Kraken’s approval. “This approval of a master account for Kraken by the Federal Reserve signals support for Wyoming’s banking and digital asset laws.”
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