Kraken Fed Master Account Still Inactive Despite Historic Approval

Kraken's Wyoming-chartered bank made history in March by becoming the first crypto-focused institution to receive approval for a Federal Reserve master account. However, months after securing the milestone, the account has yet to become operational, highlighting the challenges of integrating crypto firms into the U.S. banking system.

A Fed master account allows banks to hold funds directly with the Federal Reserve and transfer U.S. dollars through Fedwire without relying on intermediary banks. The Federal Reserve Bank of Kansas City approved Kraken's application on March 4 after the company had waited since October 2020.

Despite the approval, Kraken Financial CEO David Mathena recently told Wyoming's blockchain select committee that the bank is still working to activate the account. The company is now focused on expanding its deposit services and preparing to fully utilize the direct Fed connection. Until then, Kraken continues to process U.S. dollar wire transfers through Dart Bank, according to its support documentation.

Kraken has previously said the rollout would happen in phases, initially serving large institutional clients. The account also comes with unique restrictions. The Kansas City Fed approved it as a one-year pilot with undisclosed conditions tailored to the bank's risk profile. Those limitations have attracted scrutiny from lawmakers, including Representative Maxine Waters, who questioned the legal basis for the so-called "limited purpose account" and whether Kraken can access services such as ACH payments or earn interest on Fed balances.

Kraken secured approval as a Tier 3 applicant, a category covering state-chartered banks without federal deposit insurance or a federal banking regulator. Such approvals are extremely rare. Federal Reserve Vice Chair for Supervision Michelle Bowman recently described Tier 3 access as nearly impossible to obtain. According to fintech analyst Jason Mikula, only three of 53 Tier 3 or unclassified applicants have ever received approval, with Kraken being the only crypto-related institution.

The uncertainty continues as the Federal Reserve finalizes new rules governing payment account access for non-bank institutions. Public comments on the proposal close on July 27, while Governor Christopher Waller expects final regulations by the end of the year. Kraken's experience could influence the Fed's handling of future applications, including Ripple's pending request for a master account.