Fed launches master account database

Bloomberg

More than two dozen financial institutions are seeking access to the Federal Reserve's payments system, most of which are located in Wyoming, Puerto Rico or California, according to a newly released data from the central bank.

On Friday, the Fed launched its much anticipated database listing of all the entities that have or are seeking so-called master accounts, which act as a single point of access to the central bank's various financial services, including payment settlement systems such as the automated clearing house and Fedwire.

The rollout ends a tumultuous chapter between the Fed and Congress, during which the two sides grappled over transparency requirements around master accounts.

"This is a great first step," Julie Hill, a law professor at the University of Alabama and a leading scholar on payment systems, said. "And I hope it is a first step. I hope it will show the Federal Reserve that transparency can be good for them and change how they think about providing information about accounts and payments in the future."

For decades, master account access was largely overlooked. Regulated banks were, for the most part, the only groups that sought such accounts and most were able to obtain them with relative ease. The database shows an uptick in interest from novel charters that specialize in digital assets or other tech-based business models.

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The issue rose to public attention last year during the Senate Banking Committee's review of Sarah Bloom-Raskin, the Biden administration's pick for Fed vice chair for supervision. During Bloom-Raskin's confirmation hearing, Sen. Cynthia Lummis, R-Wyo., questioned the nominee about her role in helping the financial technology company Reserve Trust obtain a master account through the Federal Reserve Bank of Kansas City. 

A former deputy Treasury secretary and Fed Board governor, Bloom-Raskin joined Reserve Trust's board of directors after leaving the federal government. During her tenure, the firm became the first fintech and first state-chartered trust to obtain a master account. Republicans on the Banking Committee held up Bloom-Raskin's nomination as they questioned whether she used her connections in government to curry favor for the company. 

Bloom-Raskin's ultimately withdrew from consideration and Reserve Trust's master account was revoked, but the lingering question remained. 

Then-Sen. Pat Toomey, a leading critic of the Fed's unwillingness to disclose information about which firms have and have sought master accounts, inserted a provision into last December's omnibus defense spending bill that mandated the creation of a public database. Toomey argued that master accounts were a public good conferred to the private sector and information about them should therefore be broadly accessible.

The database, which can be found under the payments portion of the Fed's website, allows users to search for institutions by name, location, Federal Reserve district and date of application or decision. Users can also narrow their search by whether an institution is federally insured, which has emerged as a key topic of debate around the subject in recent months.

Hill applauded the Fed for going beyond the baseline requirements of the provision, noting that the central bank elected to include which tier each applicant falls into. Last year, the Fed established a three-tiered system for assessing account seekers, with tier 3 institutions getting the most scrutiny and tier 1 firms getting the least. She also noted that the ability to search for applicants and account holders by city will be a useful feature for discerning between similarly-named banks.

Still, she said, she would have liked the Fed to separate direct account holders from groups with correspondent access through an affiliation with an account holding bank. She also would have liked to have seen which tiers existing account holders fall under, but noted that retroactively applying those designations will likely take some time.

"I'm not terribly surprised they didn't include that, because they have not been dividing banks into those tiers for very long," she said.

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Hill also noted the large number of account holders without federal deposit insurance. More than 400 current master account holders fall under that category, according to the database. Hill said that fact raises questions about the Kansas City Fed's decision to reject the master account application from Cheyenne, Wyo.-based Custodia Bank.

A lack of federal deposit insurance was one of several reasons cited by the reserve bank for denying Custodia — a digital asset bank — access to the Fed's payments system.

Custodia is suing the Fed over the decision to deny it a master account, citing, among other things, an undermining of the dual banking system, in which state-chartered banks are treated equally to nationally chartered ones.

Custodia CEO Caitlin Long took to Twitter after the database went live. She said the information raises "a lot of questions," especially about account holders that "may not even have been eligible for one."

"No wonder why the Fed fought so hard to keep this list secret for so many years, until Congress forced it to release the list," she tweeted.