Giving nonbanks access to the payments system may not be as simple as some policymakers believe, according to Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City.
Addressing a banking symposium in Houston Wednesday, Mr. Hoenig said many of today's safety-and-soundness rules are intended to prevent a failure at one institution from causing the payments system to crash. Nonbanks, however, are not subject to these regulations, he said.
"It is important that we clearly specify what access nonbanks will have and how the payments system can be insulated from those risks," he said.
Mr. Hoenig said regulators could charge nonbanks that use a significant amount of interday credit, limit the amount they may deposit in a bank, and require them to hold collateral.
"By protecting the payments system in this way, individual institutions can fail without necessarily threatening the financial system," he said. "Furthermore, it opens greater opportunities for these institutions to broaden the scope of their other activities with less regulatory oversight."