December 08, 2022

Annual Defense Bill Includes Toomey Provision to Require Federal Reserve Transparency on Master Accounts

Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) released the following statement after his provision requiring the Federal Reserve to provide transparency to the public about master accounts was included in the National Defense Authorization Act (NDAA).

“Events and information gleaned over the last year have raised significant policy questions about the Fed’s approach to awarding master accounts. Access to the Fed’s payment system is a highly valuable public good, and Congress has a responsibility to taxpayers to ensure regulators give out public goods in a fair and consistent manner.

“This provision will provide the American people with the information about master account applications that they deserve, but which the Fed has refused to provide. The Fed and other regulators need to know that if they won’t be transparent, Congress will hold them accountable.”

Senator Toomey’s provision, which is section 5708 of the NDAA, requires the Federal Reserve to create and maintain a public, online, searchable database of institutions that have access to a master account, as well as entities that have requested access to a master account. The database must be updated quarterly and include the status of any request for access, including whether a request was rejected.

The provision’s inclusion in the NDAA is the result of extensive Banking Committee oversight of the Fed’s approach to master account applications. In response to that oversight, the Federal Reserve announced on November 4, 2022 that it was seeking public comment on a proposal to periodically publish a list of institutions that have access to master accounts. However, the Federal Reserve did not propose disclosing information about institutions whose requests for access to master accounts are pending or have been rejected.

In response to the Federal Reserve’s November 4th announcement, Senator Toomey stated:

“[This] announcement represents a step in the right direction, but more transparency is needed. Taxpayers should know not only which institutions have been granted master accounts, but also which ones have been denied access. Just as the FDIC maintains a public database of application for deposit insurance and the OCC maintains a public database of bank charter applications, the Fed should adopt a public database for master account applications.”

Senator Toomey’s provision in the NDAA will ensure that the public has access to this important information.

Background on the Banking Committee’s Oversight of the Fed’s Master Account Process

  • In May 2017, four months after leaving the Department of the Treasury, former Fed Governor Sarah Bloom Raskin joined the Board of Directors of the Reserve Trust Company (Reserve Trust), a non-bank fintech in Colorado.
  • After Reserve Trust’s application for a Fed master account was denied by the Kansas City Fed in 2017, Ms. Raskin called, in August 2017, Kansas City Fed President Esther George on behalf of Reserve Trust.
  • Shortly thereafter, “Reserve Trust became the first state chartered trust company to obtain a Federal Reserve master account, granting direct access to Federal Reserve clearing, payment, and settlement services,” as Reserve Trust’s website previously boasted.
  • On February 1st of this year, Ranking Member Toomey sent a letter to the Kansas City Fed requesting information pertaining to its approval of Reserve Trust’s application for a Fed master account.
  • On February 11th, Senator Toomey sent a follow up letter after the Kansas City Fed refused to turn over documents and information that would corroborate its February 7th statement claiming the decision to reverse its denial of Reserve Trust’s application was because “[Reserve Trust had] changed its business model and the Colorado Division of Banking reinterpreted the state’s law.”
  • On February 11th, Ranking Member Toomey also sent a letter to Fed Chairman Jerome Powell after the Fed refused to answer whether Ms. Raskin had communicated with anyone at the Fed on behalf of Reserve Trust. In a phone call on February 8th, Fed staff notified Banking Committee staff that the Fed did not intend to answer this question.
  • On February 15th, the Colorado Division of Banking disputed the Kansas City Fed’s prior claim that “the Colorado Division of Banking reinterpreted the state’s law in a manner that meant [Reserve Trust] met the definition of a depository institution.” In a statement to the press, the Colorado Division of Banking said the Kansas City Fed’s claim was a “misrepresentation” of its role.
  • On June 8th, Ranking Member Toomey sent a letter to the Kansas City Fed requesting a briefing and documents after learning that the Kansas City Fed had revoked Reserve Trust’s master account.
  • On June 16th, Kansas City Fed President Esther George wrote to Ranking Member Toomey claiming that the Kansas City Fed can’t provide any information regarding the revocation of Reserve Trust’s master account because it’s confidential supervisory information (CSI). Yet Ms. George told Ranking Member Toomey on a February 7th phone call that this information was not CSI because the Kansas City Fed is not a supervisor for Reserve Trust.
  • On June 16th, Kansas City Fed President Esther George responded by again refusing to turn over information to the Banking Committee.
  • On June 29th, Senators Toomey, Tim Scott (R-S.C.), Thom Tillis (R-N.C.), and Cynthia Lummis (R-Wyo.) sent a letter blasting the Kansas City Fed for yet again refusing to turn over information to the Banking Committee.
  • On July 29th, in response to a Freedom of Information Act (FOIA) request by the American Accountability Foundation (AAF), the Fed revealed that it has records relating to Ms. Raskin and Reserve Trust.
  • On August 9th, Banking Committee Republicans sent a letter to the Fed criticizing it for failing to turn over these records relating to Ms. Raskin and Reserve Trust to the Banking Committee, or notify senators that they exist, even though they specifically requested them in February 2022.
  • To this day, the Kansas City Fed and the Fed have refused to turn over a single document regarding Reserve Trust’s master account application.