Proposed Fed account prototype needs more robust controls
The Federal Reserve’s proposal of a Reserve Bank Payment Account prototype does address a subset of risks, but it also brings concerns, shared America’s Credit Unions in a letter to the Fed Friday. The proposed prototype would be for non-federally insured institutions but facilitate “more streamlined review than a request for a Master Account from a comparable institution,” according to the proposal.
It’s not clear how the overall review process for likely applicants, such as uninsured depositories, aligns with the goals set forth in the Board’s Account Access Guidelines.
“While we are supportive of the Board’s decision to preemptively address credit risk by limiting eligibility to earn interest on account balances, access to the discount window and intraday credit, and by imposing other account restrictions, the Board should articulate a more robust set of controls that address operational risks posed by applicants not subject to the insurance-based oversight of a functional banking regulator,” it reads.
Allowing uninsured institutions to access Reserve Bank payments infrastructure and use a single state’s money transmitter laws to engage in nationwide money transmission “could undercut multi-state efforts to adopt standards and licensing regimes designed to combat money laundering,” it adds.
America’s Credit Unions encouraged the Federal Reserve board to consider the broader financial stability implications of inviting greater flows of funds into uninsured, special-purpose institutions, which over the long term “could frustrate the Board’s ability to execute monetary policy or implement traditional features of safety and soundness oversight.”