GOP senator grills Biden Federal Reserve nominee Sarah Bloom Raskin
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Sarah Bloom Raskin, who was nominated for vice chairman of supervision and is a member of Federal Reserve Board of Governors, addresses a confirmation hearing of Senate Banking, Housing and Urban Affairs Committee in Washington, D.C., U.S., February 3, 2022.
Bill Clark | Reuters
Senate Republicans suggested Thursday that Sarah Bloom Raskin — President Joe Biden’s nominee for the top bank supervisory post at the Federal Reserve — used her status as a former government official in 2017 to help a company on whose board she sat get special access to the Fed’s payments system.
Cynthia Lummis, a Wyoming Republican, repeatedly asked Raskin to not answer any questions about her call to the Kansas City Regional Federal Reserve for Reserve Trust. Lummis claimed that Raskin called the Kansas City Regional Federal Reserve on behalf of Reserve Trust after speaking before its Banking Committee.
CNBC later learned from a Senate Republican aide that Senator Pat Toomey (a Pennsylvania Republican) was the top ranking member and sent a February letter to the Kansas City Fed asking for information on Raskin’s purported 2017 calls to the regional Fed bank.
Toomey received a reply from a Fed official, who confirmed that Raskin had indeed called the Kansas City Fed in support of Reserve Trust’s master application for a master account.
CNBC contacted the Kansas City Fed representatives but they declined to respond.
According to a White House spokesperson, Sarah Bloom Raskin took her moral obligations during her public service and afterwards very seriously.
“As part of her nomination, she worked with career officials at the Federal Reserve and the Office of Government Ethics to comply with all ethics requirements — just as she did the previous two times she was confirmed by the Senate,” the White House said.
“Senator Lummis engaged [in]Lummis innuendo, but no evidence to prove her claims. “Senator Lummis could have presented any facts to support her innuendo at the hearing if she had them,” said the spokesperson.
Lummis didn’t suggest Raskin had broken the law. She suggested that Raskin, the ex-Fed governor and Treasury deputy, used the leverage she gained from previous stints in government to gain an edge in the corporate sector. This practice can sometimes be referred to as “revolving door”, which is a link between corporate and political interests.
Kathleen Clark from Washington University in St. Louis, said “It does not mean that Bloom Raskin has violated the laws.” However, the “revolving door” raises questions about whether the legal restrictions on revolving doors are sufficient.
Clark said that Lummis raises the question whether financial institutions are disadvantaged by not having access to Bloom Raskin or because they don’t have Bloom Raskin as a board member.
Raskin was a Federal Reserve Governor for four years, then he became a deputy Secretary at the Treasury Department, before he joined the Board of Reserve Trust in May 2017, a company that provides financial technology payments.
Reserve Trust submitted its first Federal Reserve master account application a month later. It was rejected.
Reserve Trust, a fintech firm, has long requested Fed master accounts. These allow businesses direct access to Fed payment systems and the ability to settle transactions through other participants.
To be able to access indirect Fed payment services, the vast majority of fintechs that are not banks, such as Reserve Trust, have to partner with FDIC-insured banks.
John Milikowsky, San Diego’s tax attorney wrote on Thursday that Reserve Trust is a Special Purpose Depository Institution. (SPDI). It wants access to Federal Reserve’s payment system in order to perform financial transactions.
Reserve Trust failed to respond immediately to our voice mails seeking comments.
Lummis grills Raskin
Lummis claimed Thursday that Raskin called Kansas City Regional Federal Bank on August 2017, to inquire about the refusal of Reserve Trust’s master accounts application. This was two months before Lummis made the statement.
Lummis stated that Reserve Trust was eventually granted a Fed master Account in 2018.
Lummis stated at Raskin’s confirmation hearing that “to my knowledge there is one and only one state-chartered trust firm that has Fed master accounts.”
Lummis stated that Reserve Trust, a Colorado-based startup founded in 2016, is the subject of this project.
The senator stated that Reserve Trust had repeatedly praised the firm’s Fed master accounts.
Their homepage states that Reserve Trust, which is the nation’s only fintech company, has a Master Account at the Federal Reserve. One of their investors also stated that Reserve Trust will have direct access to payment rails and a master account. [that has such an account].”
Lummis then said, “It’s a mystery to me how dozens of fintech companies have tried unsuccessfully, and how Wyoming’s SPDI charter has been under review for well over a year — two and a half years at the Fed consulting with them about how to make this qualify.”
How did Reserve Trust become so successful? Lummis asked Raskin. Lummis asked Raskin, “After Reserve Trust received their denial letter, have you spoken with Federal Reserve officials about Reserve Trust?”
Raskin replied that she had been on the board of directors for this company from 2017 until 2019.
Lummis replied: “And, they got their master accounts in 2018. Did you contact the Federal Reserve to inquire about Reserve Trust’s request?
Raskin refused again to answer this question.
Raskin said, “Well…certainly, if your suggestion is anything inappropriate, I want very clearly to clarify that I have had, first and foremost the honor of serving in various public capacities.” “And I have always been mindful of what the rules are about my departures every time that I have left.”
Lummis asked the question again, and said that she knew Raskin had called the Kansas City Fed on August 2017.
Reserve Trust has been denied. The Board of Governors will then grant them a master accounts. You did you speak with the Board of Governors concerning Reserve Trust’s application? Lummis asked.
Raskin responded, “So, I can assure that I have been extremely focused,” Lummis asked, before Raskin said, “Well, with whom did you communicate?”
Raskin stated, then, that “First and foremost, I want you to be very specific here.” Many master accounts have been approved by the Federal Reserve.
Lummis stated, “But no in fintech.”
Lummis asked Raskin about Amias Gerety’s position as acting secretary of the Treasury Department. Raskin was deputy Secretary at Treasury. Lummis stated that Gerety also works as a partner with QED Investors. QED Investors is the current controlling owner of Reserve Trust.
Lummis stated to Raskin, “So QED Investors purchased 195,000 Reserve Trust Shares you received when joining the board in 2017.” Your shares were purchased by them for nearly $1.5 million. This is a large sum for two-year membership on a board.
Next, the senator stated: Let me summarize: You leave Treasury. However, for two consecutive years you will serve as a member of Reserve Trust’s board. The senator denies their first request for a master bank account. You call the Federal Reserve and Reserve Trust gets a Fed Master Account. It is the only trust company with a state charter. You walk out with one million and half dollars.
Lummis stated that “Something does not smell right” with how this unfolded. Even though my state has been working for the Fed two years to develop our guidelines for master accounts, they haven’t been approved by me or my constituents.
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