Episode Summary
Executive Summary: The episode examines two major legal questions facing the Federal Reserve: whether fintech firms can obtain “skinny” access to Fed payment rails via master accounts, and how the Fed should be governed and held accountable. David Zaring argues banking regulation is increasingly about tailored charters for distinct activities, and that financial regulation is best understood as corporatist rather than typical adversarial administrative law.
Main Topics: Rise of financial regulation scholarship after the 2008 crisis (Priority: 4/5): Zaring explains that the Great Financial Crisis created demand for a new generation of legal scholars focused on banking and financial regulation, since the crisis showed how central public intervention is to finance. Skinny Fed master accounts and fintech access (Priority: 5/5): The conversation centers on whether firms like Custodia, Kraken, PayPal, and others should get limited access to Fed payment rails without becoming full banks, and how recent Fed and court actions are reshaping that debate. Skinny charters and unbundling banking functions (Priority: 5/5): Zaring defends the idea that payments, deposits, and lending can be separated into bespoke charters rather than bundled into a full bank charter, matching regulation to risk. Fintech charter, trust charter, and legal pathways (Priority: 4/5): The discussion contrasts the OCC’s unused fintech charter, the popularity of trust charters, and acquisition of small banks as alternative routes for fintechs seeking federal access. Fed governance, independence, and corporatist regulation (Priority: 5/5): Zaring argues the Fed and other bank regulators do not fit standard administrative-law models because they are self-funded, less subject to presidential/congressional control, and operate through stakeholder bargaining. Congressional proposals and future reform (Priority: 3/5): The episode closes with the bipartisan PACE Act and related stablecoin/payment legislation as possible statutory solutions for payments providers seeking direct access to Fed rails.
Key Arguments: Financial regulation became a distinct scholarly field after 2008 because the crisis revealed how much banking depends on public intervention and systemic stability. A full bank charter should be reserved for firms that take deposits, make loans, and manage maturity mismatch risk; payments-only or custody-only businesses may justify narrower charters. Fed payment access can be separated from full banking supervision because payments processing is less risky than maturity-transformation banking. The OCC likely already has authority to create a fintech charter, but Congress backing such a regime would reduce legal uncertainty. The Fed, OCC, and FDIC operate differently from standard agencies: they are self-funded, less exposed to presidential control, and not commonly sued by regulated firms. Banking regulation is better described as corporatist—stakeholders and regulators negotiate outcomes—rather than adversarial legalism. The Fed’s current and proposed master-account policies are attempts to rebuild a regulatory perimeter around banking functions that no longer align neatly with modern fintech business models. The PACE Act would explicitly authorize payments providers meeting certain criteria to access Fed rails, potentially offering a clearer legislative route than agency-only fixes.
Data Points: Year the OCC fintech charter emerged: 2014 - Zaring notes the OCC fintech charter has existed since 2014 but no firm has successfully used it. Custodia master-account application: 2020 - Custodia applied for a Fed master account in 2020 and later sued after denial/delay. Kraken master-account decision: 2020 application, approved years later - The transcript says Kraken applied in 2020 and eventually received a master account under the newer Fed approach. Tenth Circuit panel size: 3 judges - The original Custodia appeal was decided by a three-judge panel. Tenth Circuit en banc vote: 7 to 3 - The transcript highlights the 7–3 vote not to rehear Custodia en banc, with a dissent signaling possible Supreme Court interest. Custodia’s charter type: Wyoming special purpose depository institution - Custodia is described as a state-chartered, crypto-facing institution seeking Fed payment-rail access. Federal Reserve payment systems named in PACE Act discussion: FedNow, FedACH, FedWire - The proposed PACE Act would grant qualifying payments providers access to these rails. PACE Act licensing threshold: 40 state money transmitter licenses - Zaring says the bill appears to target large payments firms with broad state coverage. Fed chair and governance issue date in discussion: April 24 - The host says the episode was recorded on April 24 and references DOJ dropping a case involving Jerome Powell.
Pivotal Quotes: "The financial crisis sort of created a need that the legal scholarly community didn't know it had for financial regulation scholars." — David Zaring: Explaining why post-2008 financial regulation became a major academic field. "I don't see why you couldn't offer a series of bespoke skinny charters, a full charter for banks, which require a lot of federal regulation." — David Zaring: Summarizing his core thesis that regulation should match the specific banking function. "I think that the Federal Reserve and the other banking regulators don't really conform to typical notions of administrative law." — David Zaring: Introducing his argument that banking regulators operate outside standard agency models.
Implications: The episode suggests fintech and crypto firms may gain cleaner legal pathways through tailored charters or legislative fixes, while Fed accountability debates may increasingly turn on whether banking regulators are a distinct corporatist system rather than ordinary agencies.
About Macro Musings
Hosted by David Beckworth of the Mercatus Center, Macro Musings pulls back the curtain on the important macroeconomic issues of the past, present, and future.