On November 4, 2022, the Board of Governors of the Federal Reserve System (Federal Reserve) proposed periodically publishing a list of depository institutions with access to Federal Reserve accounts—often referred to as “main accounts”—and depository services. payment.1 The proposal would reverse a position the Federal Reserve took in its recent account access guidelines and aims to bring greater transparency to an obscure area of federal banking law. However, even if the proposal is adopted, it is unlikely to stifle public debate on master account access.
As noted in our previous legal update, Federal Reserve Regional Banks (FRBs) provide financial services to depository institutions, including banks, credit unions, and savings and loans, as well as the services that institutions provide to their clients.2 These services include check collection, electronic funds transfer, and distribution and receipt of cash and coins. To settle transactions with an FRB, an institution may open a main account with the FRB or rely on the main account of another institution on a correspondent basis. In all cases, a FRB must approve an institution’s request for access to the services, including the opening/use of 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 given to FRBs when processing master account applications. Earlier in 2022, the Federal Reserve adopted guidelines on the factors and levels of scrutiny FRBs should use to assess major account applications.3 The guidelines did not address eligibility criteria for master accounts.
The preamble to the access guidelines states that:
[T]The identity of institutions that maintain accounts at Reserve Banks or request access to accounts and services is considered confidential business information and as such public disclosure of the status of accounts by banks reserve would not be appropriate.4
This position was somewhat intriguing given that, from 1942 to 1981, the Federal Reserve published a quarterly list of institutions that held master accounts with FRBs.5 In addition, FRBs already disclose the identity of primary account holders to other primary account holders as part of the directory search feature of their payment service products.
The proposal states that to improve transparency, the Federal Reserve would publish quarterly lists of federally insured depository institutions and nonfederally insured depository institutions that have primary accounts. The listings would also indicate which institutions had received master accounts in the last quarter and which institutions no longer had master accounts.
The listings would not reveal pending master account requests, master account request rejections, or reasons for a master account closure. The Federal Reserve says such disclosures could discourage institutions from applying for primary accounts.
Take away food
While transparency is often a laudable goal in itself, it’s unclear why the Federal Reserve released the proposal at this point. Notably, the Transparency Proposal does not address eligibility criteria for a master account or impose a time limit on FRBs to adjudicate on account access requests. These are issues that are currently the subject of litigation, and regulatory action by the Federal Reserve could help resolve them.6 A list of institutions with primary accounts would not solve either of these problems. Therefore, even if the proposal passes, we expect public debate and litigation to continue.