On November 4, 2022, the Board of Governors of the Federal Reserve System (Federal Reserve) proposed to periodically publish a list of depository institutions that have access to Federal Reserve accounts—often referred to as “master accounts”—and payment services.1 This proposal would reverse a position that the Federal Reserve adopted in its recent account access guidelines and is intended to bring greater transparency to an arcane area of federal banking law. However, even if the proposal is adopted, it is unlikely to quell the public debate about master account access.
As discussed in our earlier Legal Update, the regional Federal Reserve Banks (FRBs) provide financial services to depository institutions, including banks, credit unions, and savings and loans, much like the services that institutions provide to their customers.2 These services include collecting checks, electronically transferring funds, and distributing and receiving cash and coin. To settle transactions with an FRB, an institution may open a master account with the FRB or rely on another institution’s master account on a correspondent basis. In all cases, an FRB must approve an institution’s request to have access to services, including with respect to opening/using 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 accorded to the FRBs as they process requests for master accounts. Earlier in 2022, the Federal Reserve adopted guidelines on the factors and levels of scrutiny that the FRBs should use to evaluate requests for master accounts.3 The guidelines did not address eligibility criteria for master accounts.
The preamble to the access guidelines states that:
[T]he identity of institutions that maintain accounts at Reserve Banks, or that request access to accounts and services, is considered confidential business information and, as such, public disclosure of account status by the Reserve Banks would not be appropriate.4
This position was somewhat intriguing given that, from 1942 to 1981, the Federal Reserve published quarterly a list of institutions that held master accounts at the FRBs.5 Further, the FRBs already disclose the identity of master account holders to other master account holders as part of the directory search feature of their payment services products.
The proposal states that to improve transparency, the Federal Reserve would publish quarterly lists of the federally insured depository institutions and non-federally insured depository institutions that have master accounts. The lists would also indicate which institutions had received master accounts in the last quarter and those institutions that no longer had master accounts.
The lists would not disclose pending requests for master accounts, rejections of requests for master accounts, or reasons for the closure of a master account. The Federal Reserve indicates that disclosures like these might discourage institutions from requesting master accounts.
While transparency often is a worthy objective in its own right, it is unclear why the Federal Reserve has issued the proposal at this point in time. Notably, the transparency proposal does not address the eligibility criteria for a master account nor impose a deadline for the FRBs to decide on requests for account access. These are issues that currently are the subject of litigation, and regulatory action by the Federal Reserve could help address them.6 A list of institutions with master accounts would not address either issue. Therefore, even if the proposal is adopted, we expect public debate, and litigation, to continue.
1 Press Release, Federal Reserve Board invites public comment on a proposal to publish a periodic list of depository institutions that have access to Federal Reserve accounts—often referred to as “master accounts”— and payment services (Nov. 4, 2022), https://www.federalreserve.gov/newsevents/pressreleases/other20221104a.htm.
2 See our earlier Legal Update that provides additional background on master accounts: https://www.mayerbrown.com/en/perspectives-events/publications/2021/05/us-federal-reserve-proposes-guidelines-for-access-to-frb-services-for-non-traditional-federal-and-state-charters.
3 See our earlier Legal Update on the account access guidelines: https://www.mayerbrown.com/en/perspectives-events/publications/2022/08/master-account-access-guidelines-finalized-by-us-federal-reserve.
5 See Federal Reserve, Notice of Discontinuance (Aug. 20, 1981), https://fraser.stlouisfed.org/title/g4-state-member-banks-federal-reserve-system-nonmember-banks-maintain-clearing-accounts-federal-reserve-banks-corporations-foreign-banking-financing-maintain-reserve-accounts-federal-reserve-banks-1063/august-20-1981-528873.