The Federal Reserve payment system is a walled garden, and rightly so; there are serious risks to opening access to unregulated or underregulated entities. But the walls should be drawn around prudent regulation, not arbitrary criteria. Fed membership should automatically mean access to Fed payment rails. Otherwise, if you build the walls in the wrong place, innovation will go offshore into foreign jurisdictions, beyond the reach of any U.S. regulator.
FDIC insurance is one of those arbitrary lines. Some point to its absence as a reason to hesitate, but that confuses two different risks. FDIC insurance protects against the risk created when a bank lends out client deposits, a risk inapplicable to a fully reserved custodial bank like Anchorage Digital Bank. Even stablecoin issuance, which more national trust banks are doing, is effectively full-reserve banking. Every stablecoin is always backed 100% by reserves, there is no fractional…
