Toomey, Scott, Tillis, Lummis Blast Kansas City Fed for Again Stonewalling Congress on Master Account Process
Dispute Kansas City Fed’s Claims of ‘Confidential Supervisory Information’
Washington, D.C. – U.S. Senators Pat Toomey (R-Pa.), Ranking Member of the Senate Banking Committee, Tim Scott (R-S.C.), Thom Tillis (R-N.C.), and Cynthia Lummis (R-Wyo.) blasted the Federal Reserve Bank of Kansas City (Kansas City Fed) for its latest refusal to turn over information about a master account that was awarded, then rescinded, to the troubled yet well-connected fintech Reserve Trust.
Upon learning that the Kansas City Fed had recently revoked Reserve Trust’s master account, Ranking Member Toomey sent a letter on June 8 to the Kansas City Fed requesting a briefing and documents. On June 16, Kansas City Fed President Esther George responded by again refusing to turn over information to the Banking Committee.
In a new letter, Senators Toomey, Scott, Tillis, and Lummis wrote to Ms. George criticizing the Kansas City Fed’s obstructionism.
“The Kansas City Fed once again refuses to comply with a reasonable request for information about its unusual treatment of Reserve Trust’s master account,” the Senators wrote. “Your letter asserts that the Kansas City Fed ‘has acted appropriately and ethically in decisions related to [Reserve Trust] and other institutions that have sought a master account.’ But you have repeatedly rebuffed any attempt to subject your claim to public scrutiny, even though access to master accounts is a major public policy issue about which the Fed has twice solicited public comments in the past two years. By continually stonewalling Congress, you have essentially asserted that the Kansas City Fed is not subject to any oversight by Congress or the public. As one former Obama administration official said, ‘If the Kansas City Fed is not accountable to Congress for regulatory decisions, then to whom are they accountable?’”
In her reply to Ranking Member Toomey, Ms. George claimed that the Kansas City Fed can’t provide the information requested because it’s considered confidential supervisory information (CSI). Yet Ms. George told Ranking Member Toomey on a February 7, 2022 phone call that this information was not CSI since the Kansas City Fed is not a supervisor for Reserve Trust.
“The credibility of your assertion that the Kansas City Fed acted appropriately and ethically is diminished when your latest letter appears to mislead Congress and the public,” the Senators wrote.
After the Kansas City Fed made its letter to Senator Toomey public, well-known financial regulation scholars criticized Ms. George’s claim. One scholar stated, “This kind of blanket denial of information to a member of Congress on so bizarre an episode, on the basis of confidential supervisory information, is very troubling.”
The Senators said the Kansas City Fed’s lack of transparency and accountability to Congress further highlights the urgent need to reform the regional Fed banks.
“Unfortunately, this type of obstructionism has become too common a response from the Kansas City Fed, other regional Fed banks, and the Fed itself—which, after all, are creatures of Congress—to congressional oversight inquiries from members in both parties,” the letter says. “It highlights the pressing need to reform the regional Fed banks to make them more transparent and accountable to Congress.”
During last week’s Senate Banking Committee hearing with Fed Chairman Jerome Powell, Senator Tillis raised the issue of the Kansas City Fed stonewalling Congress. In his opening statement, Senator Tillis said:
“I remain concerned that the Fed and its regional banks continue a pattern of stonewalling reasonable requests for information. The latest example concerns the fairness, transparency, and consistency of Fed decisions to granting highly-valuable Fed master accounts.
“This is a significant public policy issue. Ranking Member Toomey, myself, Senator Lummis, and others have repeatedly requested information about this from the Fed and the Kansas City Fed, yet still have few, if any, answers.
“Just this month, the KC Fed refused to provide any information about its recent decision to revoke the master account of Reserve Trust, a non-bank fintech. This is significant given the controversy that arose in former Governor Raskin’s nomination process when it was revealed that the KC Fed reversed its denial of Reserve Trust’s application for a Fed master account following a call from Ms. Raskin. Now months after defending its decision to grant Reserve Trust a master account, the KC Fed abruptly revoked the account without explanation. The KC Fed won’t give Banking Republicans information or even a briefing about this curious reversal.”
Senator Lummis also raised the issue with Chairman Powell last week, saying:
“The [Fed] board and the Reserve Banks have refused to provide Congress and the public with transparency with regard to the application process. At its core, a master account is a public benefit conferred by the Fed to a private institution. And since a master account is a public benefit, doesn't the public have a right to know which institutions have master accounts, and which have applied for accounts and not received them? Both the FDIC and the OCC publicly list similar application information on their websites today. So, could you commit as part of a transparency project to make publicly available a list of institutions that have received master accounts, as well as the institutions that have applied and not received?”
Chairman Powell responded to Senator Lummis by saying he’d be “glad to look into that.”
To read Senators Toomey, Scott, Tillis, and Lummis’ letter to the Kansas City Fed, click here.
Background on Reserve Trust and 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.
- As Reserve Trust’s website previously boasted, “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.”
- On February 1st, 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 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 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 Committee staff that the Fed does not intend to answer this question.
- 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 recently 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.
- To this day, the Kansas City Fed has refused to turn over a single document regarding Reserve Trust’s master account application.
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