Fed weighs publishing list of master account holders, applicants

The Federal Reserve is weighing whether to publish a list of institutions that have accounts at its 12 regional reserve banks. 

The Fed Board of Governors Friday announced that it is seeking public comment on a proposal to require reserve banks to submit a quarterly report on the depositories in their district that have been granted so-called master accounts, which provide access to the Fed's various payment services.

The information on master account holders would then be compiled into a single list published on the Federal Reserve System website, according to a notice filed with the Federal Register on Friday.

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The Fed is also considering whether to publicize the names of groups that have submitted applications for master accounts, the dates on which they applied and the status of their applications.

"Today's proposal will enhance transparency to the public by periodically publishing a comprehensive list of financial institutions that have access to Federal Reserve accounts and payment services," Fed Vice Chair Lael Brainard said in a statement. "I look forward to getting feedback on this proposal for enhanced transparency."

Historically, the Fed has made little information about master account related information available to the public, because it has deemed that to be confidential business information.

In a statement released Friday afternoon, the Fed said the decision to consider a more public-facing approach to master account management stems from comments received during the rulemaking process for its new framework for granting master accounts, which was finalized in August. 

The Fed is also under pressure from members of Congress to provide more clarity into the master account granting process.

For months, Sen. Pat Toomey, R-Pa., the ranking member of the Senate Banking Committee, has been urging the Federal Reserve Bank of Kansas City to provide information about its handling of the master account of Reserve Trust, which became the first financial technology to secure an account with a reserve bank. The Denver-based trust later had its account revoked.  

The issue first surfaced during the confirmation hearing of Sarah Bloom Raskin, a former Fed governor who was the Biden administration's first pick to be the Fed's vice chair for supervision. Raskin sat on Reserve Trust's board of directors when the firm was granted a master account, raising questions about what role she might have played in securing the Fed's approval. Raskin ultimately withdrew from consideration in the face of pushback from Sen. Joe Manchin, D-W.Va., and banking committee Republicans.

Custodia ruling leaves Fed with no good options

The Fed's master account granting process has also been called into question in a lawsuit filed by Custodia Bank. The Wyoming-based digital-asset bank is attempting to compel the Fed to make a decision about its two-year-old application for a master account. 

In its claim, Custodia argues that as a state-chartered depository institution, it has a right to an account or at least a timely response to application, as called for by the Administrative Procedure Act. 

The Fed has rebuffed these assertions, arguing that Custodia's business model presents new risks to the federal banking system that need to be evaluated in due time. It also argues that the reserve banks, which have discretion over which institutions are granted accounts, are not subject to the APA. 

After a federal court judge declined to grant the Fed's motion to dismiss that suit, it is poised to go to trial.

In its proposal to make master account information publicly available, the Fed has asked the public to respond to several questions, including how frequently the list should be published and what steps should be taken to ensure confidential information is not disclosed. 

The public has 60 days to respond to the request.