How Did a Small Denver-Based Payments Company Get a Federal Reserve Master Account?
Posted on 02/15/2022
The U.S. payments industry is flushed with big money investors and rife with profitable firms like Square, Paypal, Venmo, and Stripe. Controversy is arising on how a small Denver-based payments company got a Federal Reserve Master Account. Section 13 of the Federal Reserve Act states that “Any Federal Reserve Bank may receive [deposits] from any of its member banks, or other depository institutions.” A master account at one of the twelve Federal Reserve Banks is necessary for an institution to have direct access to the Federal Reserve’s payment systems and to settle transactions with other participants in central bank money. This account allows the account owner to move dollars on behalf of its customers directly, via wire and ACH payment without an intermediate or partner bank.
According to the Federal Reserve, “A Master Account is the record of financial rights and obligations of an Account Holder and the Administrative Reserve Bank (or any other Reserve Bank maintaining a Master Account identified in Operating Circular 1) with respect to each other, where opening, intraday and closing balances are determined. A Master Account is identified by a Primary nine-digit Routing Transit Number (RTN).”
This statutory authority has it so master accounts are available only to banks that are members of the Federal Reserve System and other depository institutions, and only if they satisfy any additional criteria established by the particular Federal Reserve Bank.
Based out of Greenwood Village, Colorado, The Reserve Trust Company is a fintech company that received a Federal Reserve master account while Sarah Bloom Raskin served on its board. Raskin received stock in Reserve Trust when she joined its board in May 2017. In 2017, Raskin exited from the U.S. Department of Treasury as deputy secretary. Before that role, she spent more than three years at the Federal Reserve as one of its governors.
Raksin sold her financial stake upon her 2019 departure from the company for about US$ 1.5 million. Being listed on the front page of its website, the Reserve Trust’s exclusive master account at the Federal Reserve remains the company’s single largest selling point to potential customers. Investors in Reserve Trust Company included QED Investors with participation from FinTech Collective and Ardent Venture Partners and Flywire CEO Mike Massaro. In August 2021, Reserve Trust raised US$ 30.5 million in Series A funding led by QED Investors, with FinTech Collective and Ardent Venture Partners also participating. QED Investors is a firm co-managed by Amias Gerety, who was one of Raskin’s subordinates at U.S. Department of Treasury. Gerety was Acting Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury.
U.S. Senator Pat Toomey (R-PA) said in a letter released on Friday that Raskin phoned Kansas City Federal President Esther George in 2017 to advocate for Reserve Trust Company. Previously, the Federal Reserve denied it special access to the central bank’s payments system. After Raskin’s personal intervention on behalf of Reserve Trust, the Kansas City Federal Reserve approved the Reserve Trust Company’s second request for an account in 2018. The Kansas City Federal Reserve says the decision reversal was not the result of Raskin’s call. The Kansas City Federal Reserve staff’s determination that the trust company and its business created no risk to the Federal Reserve system.
Raskin is Biden’s nominee for vice chair for supervision of the Federal Reserve’s Board of Governors.
Keywords: Federal Reserve System.
