Blog: US Federal Reserve Proposes Publishing List Of Institutions With A Master Account – Financial Services – United States – Mondaq

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US Federal Reserve Proposes Publishing List Of Institutions With A Master Account

15 November 2022

Mayer Brown

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On November 4, 2022, the Board of Governors of the Federal
Reserve System (Federal Reserve) proposed to periodically publish a
list of depository institutions that have access to Federal Reserve
accounts—often referred to as “master
accounts”—and payment services.1 This
proposal would reverse a position that the Federal Reserve adopted
in its recent account access guidelines and is intended to bring
greater transparency to an arcane area of federal banking law.
However, even if the proposal is adopted, it is unlikely to quell
the public debate about master account access.

Background

As discussed in our earlier Legal Update, the regional Federal
Reserve Banks (FRBs) provide financial services to depository
institutions, including banks, credit unions, and savings and
loans, much like the services that institutions provide to their
customers.2 These services include collecting checks,
electronically transferring funds, and distributing and receiving
cash and coin. To settle transactions with an FRB, an institution
may open a master account with the FRB or rely on another
institution’s master account on a correspondent basis. In all
cases, an FRB must approve an institution’s request to have
access to services, including with respect to opening/using a
master account.

In recent years, there has been significant public debate about
which institutions are eligible to open a master account and the
discretion accorded to the FRBs as they process requests for master
accounts. Earlier in 2022, the Federal Reserve adopted guidelines
on the factors and levels of scrutiny that the FRBs should use to
evaluate requests for master accounts.3 The guidelines
did not address eligibility criteria for master accounts.

Proposed Publication

The preamble to the access guidelines states that:

[T]he identity of institutions that maintain accounts at Reserve
Banks, or that request access to accounts and services, is
considered confidential business information and, as such, public
disclosure of account status by the Reserve Banks would not be
appropriate.4

This position was somewhat intriguing given that, from 1942 to
1981, the Federal Reserve published quarterly a list of
institutions that held master accounts at the FRBs.5
Further, the FRBs already disclose the identity of master account
holders to other master account holders as part of the directory
search feature of their payment services products.

The proposal states that to improve transparency, the Federal
Reserve would publish quarterly lists of the federally insured
depository institutions and non-federally insured depository
institutions that have master accounts. The lists would also
indicate which institutions had received master accounts in the
last quarter and those institutions that no longer had master
accounts.

The lists would not disclose pending requests for master
accounts, rejections of requests for master accounts, or reasons
for the closure of a master account. The Federal Reserve indicates
that disclosures like these might discourage institutions from
requesting master accounts.

Takeaways

While transparency often is a worthy objective in its own right,
it is unclear why the Federal Reserve has issued the proposal at
this point in time. Notably, the transparency proposal does not
address the eligibility criteria for a master account nor impose a
deadline for the FRBs to decide on requests for account access.
These are issues that currently are the subject of litigation, and
regulatory action by the Federal Reserve could help address
them.6 A list of institutions with master accounts would
not address either issue. Therefore, even if the proposal is
adopted, we expect public debate, and litigation, to continue.

Footnotes

1 Press Release, Federal Reserve Board invites public
comment on a proposal to publish a periodic list of depository
institutions that have access to Federal Reserve
accounts—often referred to as “master
accounts”— and payment services
(Nov. 4, 2022), https://www.federalreserve.gov/newsevents/pressreleases/other20221104a.htm.

2 See our earlier Legal Update that provides additional
background on master accounts: https://www.mayerbrown.com/en/perspectives-events/publications/2021/05/us-federal-reserve-proposes-guidelines-for-access-to-frb-services-for-non-traditional-federal-and-state-charters.

3 See our earlier Legal Update on the account access
guidelines: https://www.mayerbrown.com/en/perspectives-events/publications/2022/08/master-account-access-guidelines-finalized-by-us-federal-reserve.

4 87 Fed. Reg. 51,099, 51,103 (Aug. 19,
2022).

5 See Federal Reserve, Notice of Discontinuance
(Aug. 20, 1981), https://fraser.stlouisfed.org/title/g4-state-member-banks-federal-reserve-system-nonmember-banks-maintain-clearing-accounts-federal-reserve-banks-corporations-foreign-banking-financing-maintain-reserve-accounts-federal-reserve-banks-1063/august-20-1981-528873.

6 E.g., Jon Hill, Crypto Bank Sues Fed Over
‘Kafkaesque’ Account Delay
, Law360 (June 7,
2022).

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This
Mayer Brown
article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
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