KC Fed revoked Reserve Trust main account, says Toomey
Diving Brief:
- The Federal Reserve Bank of Kansas City revoked the main account for Colorado fintech Reserve Trust “after determining, among other things, that the business is no longer eligible for one,” Senator Pat ToomeyR-PA, wrote in a letter Wednesday seeking answers to Kansas City Fed President Esther George, according to The Wall Street Journal and Bloomberg.
- Senator Cynthia’s allegations LummisR-WY, that former Fed Governor Sarah Bloom Raskin helped Reserve Trust secure the lead account while serving on the company’s board helped to torpedo her appointment as the central bank’s vice president for oversight this year.
- Reserve Trust was the first – and for a time the only – fintech to have a main account, allowing the company to transfer money through the Fed system without the help of a bank. Focused on digital assets Custodia Bank sued the Federal Reserve and the Kansas City Fed on Tuesday, citing “unlawful delay” in processing its own main account application.
Overview of the dive:
The Kansas City Fed declined to comment to The Wall Street Journal or Bloomberg on the status of the main Reserve Trust account.
The company appears to have significantly reduced its footprint. A Google search of the company’s name did not yield a link to its website. A link to Reserve Trust’s home page — simply composed of an address, a telephone number and legal notices — could however be found by QED investorsthe company that ran Reserve Trust through a $30.5 million Series A investment cycle in August.
Dennis Gingold, founder and former chairman of Reserve Trust, told Bloomberg that he and QED Investors diverged on the Reserve Trust path. Gingold and other board members sold their shares to QED Investors in December 2020, he told the news service.
Toomey, a ranking member of the Senate Banking Committee, said in his letter Wednesday “it is essential that the Federal Reserve System be transparent with the public and Congress on all matters.
“This principle becomes even more important when serious concerns are raised that undermine public confidence that the Fed makes decisions when granting a public good to a private actor fairly and consistently on behalf of the American people, rather than what might be best for well-connected operators,” he wrote to George, according to Bloomberg.
George is expected to retire from the Kansas City Fed in January.
The Kansas City Fed rejected Reserve Trust’s first master account application in June 2017, a month after Raskin joined the fintech’s board. Lummis said Raskin called the Kansas City Fed in August 2017 about the denied request. Reserve Trust obtained a main account from the Fed in 2018. Reserve Trust’s LinkedIn page still relies on the company’s main account status as a selling point.
Raskin, meanwhile, repeatedly declined in her January hearing to say whether she called the Kansas City Fed on behalf of the Reserve Trust. She then submitted a written statement to Toomey stating that she “did not recall any communication I had made to assist Reserve Trust in obtaining a lead account.”
Toomey refuted this in a February letter, saying George herself told her that Raskin phoned her directly in 2017.
Republican concerns over the lead account issue and Raskin’s stance on climate change contributed to a boycott by the party’s 12-member Senate Banking Committee, forcing Democrats to delay votes on a full slate of five candidates. from the Fed. Raskin withdrew his nomination in March.
The master account issue may have been personal to Lummis. Her home state of Wyoming was a pioneer in special-purpose depository institution licensing — a Custodia Bank designation she received in 2020. She applied for a Fed lead account in October of this year. there and has been waiting 19 months for his request to be approved, he said in a complaint on Tuesday. The standard Fed agreement states “[p]processing may take 5-7 business days,” Custodia Bank said.
Toomey, in his letter Wednesday, said he was “stuck” when he asked the Kansas City Fed for a briefing and documents detailing why Reserve Trust received its main account in 2018, Bloomberg reported.
The Fed, meanwhile, has revised its approach to granting key accounts. The central bank proposed a tiered system in March that would give institutions with federal deposit insurance a “more streamlined level of scrutiny.”
“Those without insurance who are supervised by a federal banking agency would face an intermediate level of scrutiny, and those without insurance and not supervised by a federal banking regulatory agency would face a more stringent level,” the central bank said in March. .
Six banking trade groups called on the Fed, in an April letter, to clarify how it grants primary accounts to nontraditional businesses.
The purported revocation of the Reserve Trust main account “reinforces significant concerns already surrounding the fairness, transparency and consistency of the Federal Reserve System’s approach to main account applications,” Toomey wrote on Wednesday, according to the Wall Street Journal.
