August 10, 2022

Banking Republicans Blast the Fed After New Reports Indicate It Withheld Documents from Congress

“In light of this persistent refusal to comply with reasonable requests for information, we have no choice but to pursue legislation that will compel these public institutions to be more transparent and accountable to Congress.”

Washington, D.C. – U.S. Senate Banking Committee Republicans blasted the Federal Reserve (the Fed) after discovering it is in possession of documents that Banking Committee Republicans specifically requested six months ago.

Last week, it was revealed that the Fed does in fact have documents related to former Fed Governor Sarah Bloom Raskin’s involvement in helping secure a Fed master account for financial technology (fintech) company Reserve Trust. According to Bloomberg, on July 29, the Fed responded to a Freedom of Information Act (FOIA) request by the American Accountability Foundation (AAF) and revealed that it has records relating to Ms. Raskin and Reserve Trust.

On February 11, 2022, Ranking Member Toomey sent a letter to Fed Chairman Jerome Powell requesting documents related to Sarah Bloom Raskin and Reserve Trust.

In a new letter to Chairman Powell, Banking Republicans wrote:

“These documents were directly relevant to our constitutional responsibility to evaluate Ms. Raskin’s nomination to serve as Fed Vice Chair for Supervision. They also are directly relevant to ongoing congressional oversight of the Fed’s approach to master account applications. The Fed’s failure to turn over these documents to the Committee, or even notify senators that they exist, has impeded the Senate’s ability to perform two of its core functions.”

As the senators point out in the letter, the Fed not only failed to turn over a single document to the Committee, but it also failed to notify the Committee that it was in possession of such documents.

“While AAF has at least received an answer from the Fed, to this day, the Fed has not only failed to provide a single document to the Committee, but it has refused to even notify senators that such documents exist. The fact that the Fed has been more responsive to an outside non-profit group than it has to members of the Senate committee that directly oversees it is outrageous.”

Banking Republicans said the Fed’s lack of transparency and accountability to Congress further highlights the need to reform the Fed and the regional Fed banks to make them more transparent and accountable to Congress.

“Unfortunately, obstructionism has become too common a response from the Fed and regional Fed banks—which, after all, are creatures of Congress—to congressional oversight inquiries from members in both parties. In this case, the harm of that obstructionism was magnified because it also impeded the Senate’s constitutional responsibility to evaluate a presidential nomination. In light of this persistent refusal to comply with reasonable requests for information, we have no choice but to pursue legislation that will compel these public institutions to be more transparent and accountable to Congress.”

To read Banking Republicans’ full letter to Chairman Powell, click here.


Background on Reserve Trust and the Fed’s Master Account Process

  1. 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.
  2. 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.
  3. Shortly thereafter, “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,” as Reserve Trust’s website previously boasted.
  4. On February 1st of this year, 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.
  5. 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.”
  6. 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 did not intend to answer this question.
  7. 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.
  8. 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.
  9. 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.
  10. On June 16th, Kansas City Fed President Esther George responded by again refusing to turn over information to the Banking Committee.
  11. On June 29th, Senators Toomey, Tim Scott (R-S.C.), Thom Tillis (R-N.C.), and Cynthia Lummis (R-Wyo.) sent a letter blasting the Kansas City Fed for yet again refusing to turn over information to the Committee.
  12. On July 29th, in response to a Freedom of Information Act (FOIA) request by the American Accountability Foundation, the Fed revealed that it has records relating to Ms. Raskin and Reserve Trust.
  13. To this day, the Kansas City Fed has refused to turn over a single document regarding Reserve Trust’s master account application.

###