NDAA Requirements Will Improve Fed Account Transparency, but the Fed Should Go Further

Washington, D.C. – The Bank Policy Institute submitted a letter today to the Board of Governors of the Federal Reserve calling for it to go beyond the minimum requirements established in the 2023 National Defense Authorization Act (NDAA) for improving transparency around access to Federal Reserve master accounts and services. The NDAA requires the Board to create and maintain a public, online and searchable database on the entities that have, or that are requesting, access to a master account or Federal Reserve services.

“Congress’s mandate for more Federal Reserve account transparency is a positive step, but the Fed should implement additional measures to lift the veil even further on the master account application and decision-making process,” stated Paige Pidano Paridon, senior vice president and senior associate general counsel. “Public transparency helps to improve accountability and oversight, increases trust in the process and leads to a safer overall financial system for all participants.”

What changes with the new database?

Information on who has access to or has applied for a master account or Federal Reserve services was not previously available to the public. The new database will list the entities that currently have access to a Federal Reserve account and services; what entities have requested access (and the status of the application); and whether the relevant entity is an insured or uninsured depository institution. The law requires the Board to launch the database within 180 days of its enactment and update the database at least once every quarter.

What’s the benefit of a Federal Reserve master account?

Access to a Fed account connects an entity directly to the U.S. payments system, thereby enabling an entity to clear and settle private transactions without concern about liquidity or credit risk. Entities with “novel charters” – institutions without deposit insurance and not subject to consolidated supervision – have sought master accounts and services in recent years, although the application process and the Federal Reserve’s deliberations regarding those applications have been opaque.

Creating a new interlinkage between novel charters and regulated institutions via a master account, without adequate safeguards, could create a mechanism for transferring risk posed by those novel charters to Reserve Banks, the payments system and its participants, potentially threatening financial stability and the Federal Reserve’s ability to execute its monetary policy function.

What is BPI requesting?

  • Share details on applications and approval terms. Applications from novel charter entities and other entities presenting heightened risks should be subject to public comment. The terms of the approval, the level of the Fed’s ongoing oversight and monitoring of that entity and the applicants’ tier within the Fed’s three-tier risk categorization for master accounts should also be publicly disclosed. This would help to improve transparency and consistency of how Reserve Banks are evaluating applications under the Board’s guidelines.
  • Subject applicants to standards applied to federally insured depository institutions. Applicants should be required to meet capital, liquidity, operational and other risk management, cybersecurity, anti-money laundering, operational resilience, consumer protection, and other prudential requirements, as well as limitations on affiliate transactions. Tier 3 applicants – those presenting the greatest risks – should also be subject to annual, on-site examination by examination staff at the relevant Federal Reserve Bank.
  • Publish applicant data more frequently than the minimum requirements. Publishing applicant information more frequently would allow the public to provide input on applications that the Federal Reserve could use when considering the application. This would offer substantial public benefit with little to no new burden because the Board likely will track applications and account changes as they occur.

To access a copy of the letter, please click here.


About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

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