ICBA: Fed has discretion to deny master account access

ICBA told a U.S. appellate court that federal law provides the Federal Reserve Banks with the discretion to deny or grant master account access.

The Case: Payservices Bank v. Federal Reserve Bank of San Francisco addresses the question of whether Federal Reserve master accounts must be automatically made available to novel financial institutions not subject to federal prudential oversight. PayServices, a state-chartered novel institution based in Idaho, is arguing for no-questions-asked access to a master account.

Previous Ruling: The U.S. District Court ruled in favor of the San Francisco Fed, determining that Federal Reserve Banks are under no statutory obligation to grant master accounts to eligible institutions regardless of the institution’s risk profile.

ICBA Brief: In a friend-of-the-court brief filed this week with the U.S. Court of Appeals for the Ninth District, ICBA and the Consumer Bankers Association said the district court decided correctly. The groups said federal law permits the Reserve Banks statutory discretion to grant or deny applications for master account access to ensure that such accounts are given only to institutions that are found, on an ongoing basis, to have the financial and operational ability to safely and securely have direct access to the federal banking network.

Previous Developments: A federal judge earlier this year largely upheld the Fed’s master account denial of Custodia Bank, a Wyoming state-chartered special-purpose depository institution that focuses on crypto services and other novel activities and is not FDIC-insured. ICBA last year commended the Fed’s response to the Custodia application, saying the agency’s actions appropriately safeguard the banking system from the risks posed by novel institutions.

READ THE BRIEF