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The Federal Reserve announced a new system on Monday that it could offer fintechs and crypto banks direct access to its payment rails. The big question is, right?
That’s an expensive question for groups that have spent months pushing both Congress and the Fed to create a system that would give them the right to hold domain accounts, an arcane but critical component of the banking system that allows account holders to send money between them without having to incur fees by going through another bank.
Over the past year, Republicans on the Senate Banking Committee, led by Sen. Pat Toomey of Pennsylvania, turned opaque standards and inconsistent deadlines for master account applications into a political watershed.
Sarah Bloom Raskin’s Fed nomination failed after Toomey launched a series of back-and-forths about her alleged role in securing a major account of the fintech Reserve Trust through the Kansas City Fed, an easy feat for a fintech. Even stranger, Toomey says Reserve Trust later lost its letter.
The Fed has not confirmed or acknowledged his status.
“A master account is a public good, and after the Reserve Trust debacle, the public deserves greater transparency than the guidance released today,” Toomey spokeswoman Amanda Thompson said Monday afternoon. “If the Fed doesn’t understand its role as a public trustee, perhaps Congress should pass legislation to require it to be more transparent and accountable.”
Sen. Pat Toomey (R-Pa.) has called for greater transparency from the Fed around the master account process. | Tom Williams/Pool via AP
Republican Senator from Wyoming. Cynthia Lummis has offered the Fed to stop applications submitted by two crypto banks that received a special letter under state laws. Earlier this year, a bipartisan cryptocurrency invoice She co-sponsored with Sen. Kirsten Gillibrand, Democrat of New York, included provisions that would require Fed banks to make an account available to any depository institution established by state or federal law.
One of these banks, Custodia (formerly known as Avanti), sued both the Board of Governors of the Federal Reserve and the Federal Reserve Bank of Kansas City earlier this year over claims the Fed had illegally delayed its application. Notably, the Fed’s court deadline to respond to this complaint is today.
“These guidelines are long overdue and are a step in the right direction toward consistency and clarity in this process. It is important that the Federal Reserve also include clear timelines for the main account review process.” Lummis said in a statement Monday night. “I’m now waiting for some clear answers for Wyoming’s special purpose depository institutions that have been waiting for master accounts for more than two years.”
Our Victoria Guida on the new standards: “The final version closely mirrors earlier proposals, under which the central bank said it would have a three-tier system to assess who should get a so-called master account of the Fed, a privilege that allows institutions to transfer money directly to another account holder.
“Under this system, traditional banks that have federal deposit insurance would undergo ‘less intensive and more streamlined review,'” according to a Fed staff memo. Entities that are supervised by a banking agency would be in the second tier with an “intermediate level” of review, while entities without deposit insurance or prudential supervision will receive the strictest level of supervision.”
Fed Governor Miki Bowman, a former community banker who was appointed to the board by former President Donald Trump, says there is more work to be done.
“More work remains to be completed before a process is established to fully implement the guidelines,” Bowman said. on Monday afternoon, calling the new tiered system an “important step” in giving applicants more transparency in the process. “There is a risk that this publication may set the expectation that reviews will now be completed in an accelerated timeframe.”
— Electronic Transactions Association Senior Vice President of Government Affairs Scott Talbott, whose group includes major banks and fintech companies: “This three-tier system recognizes that there are other players who can bring value to the economy . It creates a regulatory pathway for fintechs to work directly with the Fed.”
Rob Nichols, president and CEO of the American Bankers Association: “We welcome financial innovation, but we must do nothing to undermine the strength and resilience of our banking system. Allowing new financial players to enter the banking system Federal Reserve without holding them to the same high standards as banks carries real risks.”
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Housing starts and building permits data released at 8:30 am … Industrial production index released at 9:15 am … President Joe Biden to sign Inflation Reduction Act of 2022.
THE IRS’S $80 BILLION QUESTION – Our Brian Faler: “The IRS is about to get a big shakeup, and you’re going to hear a lot about it between now and the November election.
“While the IRS has long been criticized as failing to do basic things like answer taxpayers’ questions and process their returns in a timely manner, Republicans are now portraying the agency as full of thugs in point to terrify average Americans.”
KHAN GRINDS WALL STREET’S GEARS: WSJ’s Dave Michaels and Ryan Tracy: “Biden administration antitrust agents are throwing sand into the gears of the Wall Street deal machine. Under Chairman Lina Khan, the Federal Trade Commission is questioning mergers that likely wouldn’t have been questioned in years past, a change Khan says is necessary to prevent companies from amassing too much power and stifling competition.
“‘In too many areas of our economy, including agriculture, airlines, health care, we have seen consolidation and a significant reduction in competition,’ said Ms. Khan in an interview. “Mergers have played a role in that.”
UNION FIGHT BREWING – Our Nick Niedzwiadek: “Starbucks alleged Monday that National Labor Relations Board staff improperly interfered in at least one organizing election and called for a halt to postal voting.”
OVERDRAFT PRESSURE — The Center for Responsible Lending is ramping up pressure on regulators to limit overdraft fees, arguing that it is not enough to expect banks and credit unions to end the practice on their own. “This is a systemic problem that requires strong action,” CRL President Mike Calhoun wrote in an op-ed in American Banker on Monday. “Financial regulators need to monitor the size and frequency of these fees.”
HOMEBUILDER CONFIDENCE SLUMP – Bloomberg’s Molly Smith: “A gauge of US homebuilder sentiment decreased for an eighth consecutive monthmarking the worst stretch since the housing market collapsed in 2007 amid rising borrowing costs and high prices.”
WHY DO PEOPLE JOIN? — NYT’s Jodi Kantor and Arya Sundaram: “Digital productivity tracking is too spanning between white-collar jobs and roles that require graduate degrees. Many employees, whether they work remotely or in person, are subject to trackers, ratings, “idle” buttons, or just silently accumulating records. Breaks can lead to penalties, from loss of pay to loss of jobs.”
DID WE… WORK? — NYT’s Andrew Ross Sorkin, Vivian Giang, Stephen Gandel, Lauren Hirsch and Ephrat Livni: “Adam Neumann, the founder of WeWork, whose spectacular rise and fall has been chronicled in books, documentaries and a television series with script,he has a new company and an amazing sponsor … Andreessen Horowitz is investing about $350 million in Flow, according to three people briefed on the deal.
COUNTERPOINT: Some comments from Monday’s Morning Money on how the Supreme Court’s EPA decision affects lobbying and advocacy efforts:
“The crypto industry continues to toe the line that it needs its own unique rulebook when what it really wants are exemptions from existing law, and now it’s trying to use a recent Supreme Court decision to scare us all ” said Mark Hays, a senior. policy analyst at Americans for Financial Reform. “On the main question of what a security is, Congress has actually spoken by passing laws. It legislated a broad definition of securities, which has been tested in the courts. This idea that lobbying and large contributions, in addition of a unified message, they give you a solid legal argument is very, very bad math.”
THREE Arrows – NYMag’s Jen Wieczner: “Among the most astute crypto watchers, there is a widespread view that Three Arrows is significantly responsible for the biggest crypto crash 2022, as market chaos and forced selling sent bitcoin and other digital assets down 70 percent or more, wiping out more than a trillion dollars in value. ‘I suspect they could be 80 percent of the total original contagion“says Sam Bankman-Fried, who as CEO of FTX, a major cryptocurrency exchange that has bailed out some of the bankrupt lenders, perhaps has more visibility into the issues than anyone else.”
FOR A CENT: The WSJ’s David Benoit and Rachel Louise Ensign: “As big banks pulled away from cryptocurrency companies, a handful of small lenders eagerly courted the booming businesses. Now, they are dealing with the bust“.
QT CONUNDRUM: The Fed’s plan double the rate at which your balance is reduced starting next month is happening as officials push ahead with interest rate hikes, Reuters’ Gertrude Chavez-Dreyfuss writes. “With some investors believing the economy is already in recession, speculation has grown that if anything has to give, it could be the pace at which QT is developing.”
WOOF – Bloomberg’s Vince Golle: “The Federal Reserve Bank of New York’s August general business conditions index fell more than 42 points to minus 31.3, with the decline just behind the observed l April 2020, a report showed Monday. A reading below zero indicates contraction, and the number it was much weaker than the most unfavorable prognosis in a Bloomberg survey of economists.”
China’s economy stumbled in July as a two-month boost from lockdown easing faded, prompting the country’s central bank to unexpectedly cut two key interest rates in an effort to shore up faltering growth. – WSJ’s Jason Douglas
A growing number of Wall Street banks are willing to trade in Russian bonds who were previously considered untouchable. — Bloomberg’s Laura Benitez and Katherine Doherty
The move to delist five Chinese state-owned companies from the New York Stock Exchange indicates Beijing may be willing to compromise to reach an audit settlement with the United States and end a more than decade-long dispute, analysts and advisers said Monday. — Reuters’ Scott Murdoch, Kane Wu and Xie Yu