Re: Guidelines for Evaluating Account and Services Requests (Docket No. OP–1747)
Ann E. Misback
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
To Whom It May Concern:
The undersigned trade associations appreciate the opportunity to comment on the Board of Governors of the Federal Reserve System’s updated guidelines for evaluating accounts and services requests. The question of which institutions should be permitted to open master accounts with a Federal Reserve Bank and obtain related services remains a critical one, particularly in light of the recent increase in the availability of novel charters at a federal and state level that may seek such accounts and services and the potential unique risks of their obtaining such accounts and services to the U.S. payments and financial systems.
We appreciate the Board’s response to certain comments that we raised in our prior comment letters, including (i) the Board’s proposal of a tier-based framework for the evaluation of applications for Federal Reserve accounts and services that would distinguish and differently treat novel charters, and (ii) the clarification that Reserve Banks would not have the authority to set interest rates on reserve balances.
However, because the reproposal does not address a range of critical issues and questions that we raised in our prior comment letters, we continue to have significant concerns that the reproposal does not appropriately and transparently address how the Board and Reserve Banks will resolve many of the most fundamental issues that any application by a novel charter is likely to raise. Most notably, as we describe in more detail below, it remains important that the Board: (i) clarify which institutions are legally eligible to apply for Reserve Bank accounts and services; (ii) explain how applications will be reviewed and scrutinized, and what conditions and limitations may be imposed in connection with approval, at each tier; (iii) explain how Reserve Banks will oversee and monitor institutions at each tier on an ongoing basis after granting an application for an account and/or services; and (iv) clarify that any decision to grant Federal Reserve accounts or services to a Tier 2 or Tier 3 applicant shall be subject to review and approval (or, at a minimum, non-objection) by the Board. Further clarity on each of the foregoing areas is needed in the final guidelines to achieve the Board’s objective of the consistent application of a set of guidelines and factors when reviewing such access requests to promote consistent outcomes across Reserve Banks and to facilitate equitable treatment across institutions.
Underlying each of our recommendations are two key principles that we strongly believe must be taken into consideration by the Board if it is to successfully meet its previously articulated policy goals. First, it is crucial that the Board itself play a central role in ensuring that the guidelines are applied consistently across Reserve Banks by exercising ultimate oversight of most decisions involving Tier 2 and Tier 3 applicants. This type of central role for the Board is necessary in order to avoid the appearance (and reality) of an uncoordinated approach and questions around incoherent precedent that can arise from a system of diffuse control of the process, as well as to eliminate the potential for forum shopping by applicants and competition in laxity among Reserve Banks.
Second, given the privileges afforded by access to accounts and services and the risks that could be posed to the payment system, the U.S. financial system and the overall economy, the guidelines should ensure that all institutions with access are held to an equally high standard of supervision and oversight to ensure their safety and soundness and compliance with other relevant laws regardless of charter type or business model. Particularly because access to Reserve Bank accounts and services comes with the extraordinary benefit of being able to clear and settle private transactions in central banks without concern about liquidity and credit risk, such access serves as a linchpin to a safe and stable payments system. And as the reproposal makes clear, such access can serve as the source of considerable risk to individual Reserve Banks, to the U.S. payments system and its participants, to financial stability and to the effective execution of monetary policy. Given these high and unique stakes, it is critical that the standards governing access are clear, transparent and rigorous.
Download the comment letter to read the full text.