In March, the cryptocurrency exchange Kraken entered territory long reserved for banks. By securing a so-called “skinny account” from the Federal Reserve, Kraken gained direct access to the same payment rails used by the country’s largest financial institutions—a privilege historically limited to banks.
The decision could reshape far more than the crypto industry. It signals a future in which payment settlement is no longer controlled exclusively by traditional banks, raising new questions about how manages financial infrastructure, who bears risk, and what role banks will play if fintechs and crypto firms can move money without them.
A study from Javelin Strategy & Research, Kraken and the Risk Stack: How the Crypto Exchange Will Change Settlements at the Fed, looks at how this landmark shift could play out. For large banks, the question is no longer whether payments infrastructure will evolve, but how institutions will position themselves in a world where settlement becomes less centralized.
How We Got to the Limited Account
The groundwork for the decision began last October, when Federal Reserve Governor Christopher Waller proposed a model that would give fintechs direct access to certain Federal Reserve services. These firms would not receive access to all Fed features, but they would be able to use, most notably, the instant payment service FedNow. Prior to that, crypto companies like Kraken had to rely on licensed banks’ master accounts to process payments—a workaround that became cumbersome and costly as transaction volume and value scaled up.
Kraken ultimately received its limited master account, becoming first crypto exchange to do so. According to Javelin Cryptocurrency Analyst Joel Hugentobler, the significance of the decision is structural rather than technological. Final settlement in U.S. payments occurs on the Federal Reserve’s ledger, and access to that ledger has historically been limited to banks. As a result, payments have traditionally flowed through bank balance sheets, introducing layers of risk that required coordination, capital, and infrastructure to manage. And, as recent history has shown, those banks were not always secure.
“Prior to Kraken having access to the Fed, they were beholden to their partner banks,” Hugentobler said. “There were four banks essentially that had their hands in crypto that failed during the last administration. So many crypto platforms were partnered with Silvergate or Silicon Valley banks, which means that customers had their funds at that platform when the bank went down.”
The collapse of Silicon Valley Bank in 2023, following a two-day bank run that became the second-largest bank failure in U.S. history, reinforced concerns about crypto firms’ reliance on traditional banking partners for deposits and payment operations. In the aftermath, Kraken began looking for a way to gain greater control over its assets and settlement flows.
“Kraken was beholden to their partner banks before,” said Hugentobler. “The new Fed skinny account eliminates most of that risk, with the Fed being the issuer of the currency. You can’t ever say there’s zero risk, but the risk is significantly decreased.”
Taking Over the Bank’s Role
The “skinny” aspect of the account refers to the fact that Kraken does not receive full access to all Federal Reserve services. It can access the FedWire and FedNow payment rails, but it doesn’t earn interest on overnight balances or gain access to the discount window. In practice, the account is designed primarily for payments and settlement, while offering few additional banking privileges.
Master accounts at the Fed have traditionally been reserved for insured depository institutions considered low risk. In exchange for access to the central bank’s rails, those institutions take on substantial compliance obligations and regulatory constraints. Kraken’s approval suggests the Fed may now be willing to separate payment access from the broader responsibilities traditionally associated with banking.
“There are strict rules pertaining to the access to the Fed, having that master skinny account, but they’re doing all the right things.” Hugentobler said. “I don’t see it being an issue for them, beyond adding a couple extra compliance monitoring workflows.”
How Will Banks React?
The impact on banks could prove just as significant as the impact on the crypto industry. In many ways,banks are being pushed up the stack—from focusing primarily on payments infrastructure toward emphasizing higher-value financial services. If nonbanks like Kraken can handle payment initiation and settlement directly, traditional institutions risk losing their gatekeeping role.
“They’ll probably focus more on liquidity and risk management and regulatory infrastructure,” said Hugentobler. “I don’t know if that’s good or bad for financial institutions, but there’s a structural shift here that’s going on, and traditional institutions definitely need to pay attention and consider the value proposition that they offer.”
Above all,financial institutions will need to renew their focus on risk management, especially in the wake of the Silicon Valley Bank collapse. In traditional payments, multiple counterparties are involved in any transaction, and each additional intermediary compounds operational and counterparty risk.
Stablecoins do not eliminate those risks. They may reduce some inefficiencies in traditional payment systems, but they also introduce new forms of exposure, including smart contract vulnerabilities and private key management challenges. Financial institutions that understand these evolving risk models—and can operationalize controls rather than simply chasing faster and cheaper settlement—will be better positioned to adopt this technology while protecting customers.
“It’s come such a long way, this industry, even from three years ago when Silicon Valley went under,” said Hugentobler. “The current administration is definitely trying to push for this stuff and have the U.S. be the hub and the leader in this area. That plays a big role for sure.”
What Comes Next
Now that Kraken has opened the door to skinny accounts, other crypto firms are likely to pursue similar arrangements.
“It’s a phased arrangement, kind of like a trial period for a year,” Hugentobler said. “If Kraken can prove themselves that they can be compliant, then I don’t see any reason why they wouldn’t allow others to follow suit.”
Banks, meanwhile, will have to adapt as their intermediary role between firms like Kraken and the Federal Reserve evolves. Rather than serving primarily as payment gatekeepers, they may increasingly focus on areas such as liquidity provision, compliance, and risk management, and fiat on- and off- ramps.
“A change in role,” said Hugentobler, “is definitely going to be happening.”
