How Fed’s 'Skinny' Accounts Could End Operation Chokepoint for Crypto Firms

The Federal Reserve is exploring the introduction of so-called "skinny" accounts, limited-purpose accounts that would allow crypto firms to hold reserves directly at the central bank without requiring full bank charters. This initiative aims to address the persistent issue of crypto companies being cut off from traditional banking services, a bottleneck often referred to as "Operation Chokepoint," which has constrained crypto operations and growth.

What happened

The Federal Reserve has publicly acknowledged challenges faced by crypto firms in accessing banking services, caused largely by commercial banks' reluctance to provide payment and settlement functions due to regulatory risks. To mitigate this, the Fed is considering or piloting "skinny" accounts that would permit certain financial institutions, including crypto firms, to hold reserves directly at the Fed, bypassing commercial banks that currently act as gatekeepers.

Senator Cynthia Lummis has voiced explicit support for this initiative, emphasizing that such accounts could reduce crypto firms’ dependence on commercial banks and improve their access to the financial system. According to statements from Federal Reserve officials and reporting by Cointelegraph and Reuters, these accounts would establish a direct relationship between crypto firms and the central bank, potentially enabling more secure and inclusive banking services.

While the Fed has not released detailed operational or policy frameworks for these accounts, it has indicated that this move is part of broader efforts to enhance financial inclusion and safety. Industry commentary suggests that "skinny" accounts could structurally alter the banking landscape for crypto firms by reducing the chokepoint created by bank de-risking and increasing regulatory oversight through proximity to the Fed’s regulatory perimeter.

Why this matters

The introduction of "skinny" accounts represents a significant potential shift in how crypto firms access essential banking infrastructure. Currently, many crypto businesses rely on commercial banks for payment processing and settlement services, but these banks frequently restrict or terminate services due to perceived regulatory and compliance risks. This has created an operational chokepoint, sometimes described as a form of de-risking or "Operation Chokepoint 2.0," which limits crypto firms’ ability to operate efficiently within the traditional financial system.

By enabling direct access to central bank reserves, "skinny" accounts could reduce crypto firms’ reliance on commercial banks, potentially alleviating this chokepoint. This shift may also bring crypto firms closer to the Federal Reserve’s regulatory oversight, allowing for more direct supervision and risk management. As a result, these accounts could enhance financial inclusion for firms and customers who have been underserved or excluded by traditional banking.

Moreover, the move could signal a broader integration of digital asset firms into the established financial system, potentially smoothing frictions that have hindered crypto adoption and operational stability. However, the scope of transformation may be limited, as "skinny" accounts primarily address deposit and payment functions and do not replace commercial banks’ lending or other financial services.

What remains unclear

Despite the confirmed intentions and public discussions, several critical questions remain unanswered. The Federal Reserve has not disclosed specific eligibility criteria that crypto firms must meet to qualify for "skinny" accounts. It is also unclear whether these accounts will come with new regulatory or compliance requirements, and how such standards would interact with existing oversight by agencies like the SEC or CFTC.

Operational considerations, such as how the Fed would manage risks related to fraud prevention and the technical integration of these accounts with existing payment systems, have not been detailed. Additionally, there is no public information on whether "skinny" accounts would support transactions involving stablecoins or other digital assets directly.

Questions also remain about scalability and accessibility: it is not known whether smaller crypto firms will be able to access these accounts or if the program will be limited to larger, established players. The response of commercial banks to this direct Fed involvement is another open area, with potential implications for cooperation, competition, or regulatory arbitrage yet to be explored.

Finally, the broader macroeconomic and systemic risk implications of expanding central bank accounts to crypto firms have not been analyzed or disclosed, leaving a gap in understanding the full impact of this initiative.

What to watch next

The Federal Reserve’s forthcoming disclosures on the operational framework, eligibility criteria, and compliance requirements for "skinny" accounts.
Regulatory guidance or coordination between the Fed and other agencies such as the SEC and CFTC regarding oversight of crypto firms holding these accounts.
Any pilot programs or public data releases demonstrating the effectiveness, challenges, or adoption rates of "skinny" accounts among crypto firms.
Developments in how "skinny" accounts integrate with existing payment rails and whether they will support digital asset transactions, including stablecoins.
Responses from commercial banks and industry stakeholders to the Fed’s direct involvement with crypto firms, including potential shifts in banking relationships or regulatory approaches.

While the Federal Reserve’s exploration of "skinny" accounts offers a promising avenue to alleviate critical banking access issues for crypto firms, significant details remain to be clarified. The initiative could reshape the interface between digital asset companies and the traditional financial system, but the extent and nature of this transformation depend on forthcoming policy decisions, regulatory coordination, and operational design.

Source: https://cointelegraph.com/news/fed-skinny-accounts-end-operation-chokepoint-lummis?utm_source=rss_feed&utm_medium=rss&utm_campaign=rss_partner_inbound. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.