Defense spending bill could force transparency of Fed master accounts

Sen. Pat Toomey's quest to bring more transparency to the Federal Reserve's master account-granting process is a Senate vote away from coming to fruition.

The ranking Republican on the Senate Banking Committee, who is poised to leave Congress at the end of the year, authored a provision for the National Defense Authorization Act that would require the Fed to publish lists of banks with master accounts and institutions that have applied for them.

The sweeping bill, which includes a record $858 billion of military funding, passed through the House by a vote of 350-80 on Thursday.

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"Events and information gleaned over the last year have raised significant policy questions about the Fed's approach to awarding master accounts," Toomey said in a written statement. "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," Toomey added.

Toomey has been critical of the Fed's process for granting master accounts — which serve as a single point of access for the central bank's various financial services, including payment processing — since the issue arose during the confirmation hearing of Sarah Bloom Raskin, the Biden administration's first pick to be the Fed's vice chair for supervision. 

Raskin, a former Fed governor, had previously sat on the board of Reserve Trust, a Colorado-based digital-asset trust and, ostensibly, the only nonbank to have held a master account with the Fed. Before Raskin's arrival, the firm's initial application for an account was denied. 

During her confirmation hearing in February, Raskin was asked what role she played in helping the company obtain a master account. She declined to delve into specifics, triggering pushback from Senate Banking Republicans that ultimately led Raskin to withdraw from consideration.

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Toomey pushed the Federal Reserve Bank of Kansas City — which granted Reserve Trust its account — to explain the action, which it declined to do, leading to a standoff between the senator and the Kansas City Fed President Esther George. 

The Fed, which is facing pressure on several fronts to amend its master account policies to account for nontraditional banks, is already considering changes to its application review process. Last month it issued a request for comment on proposed changes that would require regional reserve banks to publish quarterly lists of master account holders.

At the time, Toomey called the proposal a "step in the right direction," but said even more transparency was warranted. His proposal also calls for applicants for accounts to be made public as well, which was a secondary consideration in the Fed's request for comment.

"Taxpayers should know not only which institutions have been granted master accounts, but also which ones have been denied access," he said at the time. "Just as the FDIC maintains a public database of applications 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."

The Fed declined to comment on Toomey's provision in the defense spending bill.