On Thursday, Wyoming GOP senator Cynthia Lummis targeted Sarah Bloom Raskin, President Joe Biden’s nominee for the top bank supervisory post at the Federal Reserve, for allegedly helping Reserve Trust, whose board she sat on, get special access to the Federal Reserve’s payments system and later receiving $1.5 million from QED Investor when they purchased the 195,000 Reserve Trust shares she got when she joined the board in 2017. After Raskin refused three times to answer whether she called the Federal Reserve on behalf of Reserve Trust after joining its board, Lummis said bluntly, “Something doesn’t smell right with the way this played out.”
Questioning Raskin at her nomination hearing before the Senate Committee on Banking, Housing and Urban Affairs, Lummis began, “I’d like to ask you about Federal Reserve master account access. This is an issue of great interest to Wyoming and my constituents. I asked [Federal Reserve Board] Chairman Powell about it; I asked [Federal Reserve] Governor [Lael] Brainard about it at their nomination hearings; I’ve been stonewalled at the Fed, and so I wrote an op-ed in The Wall Street Journal.”
“Master accounts are the way banks access the payment system,” Lummis stated. “Many non-banks, including trust companies, have applied and failed to receive a Fed master account. To my knowledge there’s one and only one state charter trust company that has a Fed master account. It’s a start-up based in Colorado formed in 2016 called Reserve Trust. Reserve Trust has repeatedly touted the value of the company’s Fed master account. Their homepage says, ‘In 2021 one of the company’s investors underscored that Reserve Trust is armed with a master account at the Federal Reserve and direct access to the payment rails.’ The only company in the country that has that, the only fintech [financial technology] company.”
“Fintech firms like Reserve Trust have long sought Fed master accounts, which allow companies direct access to the Fed’s payment systems, and to settle transactions with other participants through the central bank,” CNBC explained.
“Now, a Fed master account gives Reserve Trust an enormous advantage over everybody else, since it appears they’re the only one who has it,” Lummis continued. “And you’re very familiar with Reserve Trust because you joined their board in May 2017 just four months after leaving Treasury, right? Right?”
Raskin replied, “Well, thank you for your question. I joined the board of Reserve Trust in 2017 —”
Lummis pressed, “And your Treasury stint came after four years as a Federal Reserve governor, right?”
“Four years, well, after I left as a Federal Reserve Governor I went to Treasury as a Deputy Secretary,” Raskin answered.
“Correct,” Lummis agreed. “You went from Federal Reserve governor to Treasury and then to Reserve Trust’s board. And then Reserve Trust had its master account application denied in June 2017, but one year later the Fed granted it a master account in 2018. It’s a mystery to me how dozens of fintech companies have tried unsuccessfully and how Wyoming’s SPDI [Special Purpose Depository Institution] 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 qualified. How did Reserve Trust get there so quickly?”
Then Lummis asked pointedly, “After Reserve Trust had their application denied did you communicate with the Federal Reserve about Reserve Trust’s application?”
Raskin, smirking and avoiding the question, “So, Senator, I was on the board of Reserve Trust on the board of directors from 2017 till 2019.”
Lummis repeated, “And they got their master account in 2018. So did you call or communicate with the Federal Reserve about Reserve Trust’s application?”
Raskin huffed as she evaded the question again, “Well, certainly if you are suggesting anything improper I want to make very clear that I have had, first of all, had the honor to serve in various pubic capacities and each time I left I have been very mindful of the rules regarding departure.”
“It’s my understanding you did call the Kansas City Fed in August of 2017 regarding Reserve Trust’s master account application,” Lummis asserted.
“A Senate Republican aide later told CNBC that Sen. Pat Toomey, a Pennsylvania Republican and the ranking member of the committee, sent a letter to the Kansas City Fed in early February requesting information about Raskin’s purported calls to the regional Fed bank in 2017. The aide added that a Fed official replied to Toomey and confirmed that Raskin did indeed place a phone call to the Kansas City Fed on behalf of Reserve Trust’s master account application,” CNBC noted.
“So I have significant questions about your involvement in Reserve Trust’s efforts to obtain a master account,” Lummis continued. “So, Reserve Trust is denied; you go on their board, then they get a master account.” She asked for a third time, “Did you communicate with the board of governors about Reserve Trust’s application?”
Raskin dodged a third time: “So I can assure you that I have have been very focused —”
Lummis asked, “Well, who did you communicate with?”
Raskin, laughing, “First of all, I want to be very clear here. The Federal Reserve has approved plenty of master accounts.”
“But not in fintech,”Lummis fired. “You resigned from Reserve Trust in August of 2019, correct?”
“August 2019 I left the board of Reserve Trust,” Raskin agreed.
Lummis said, “Correct. Now, do you know Amias Gerety?”
“Yes. I do know Amias Gerety,” Raskin admitted.
“While you were number two at Treasury, Mr. Gerety was the acting assistant secretary for financial institutions and he reported to you, right?” Lummis pressed.
“He did not report directly to me, but yes, he was at Treasury when I was there,” Raskin acknowledged.
Lummis stated, “And he’s also a partner at QED Investor, which is now the controlling owner of Reserve Trust. So in 2020, QED Investor purchased the 195,000 Reserve Trust shares you received when you joined the board in 2017. And they purchased your shares for almost 1.5 million dollars. Even in this town that’s a lot of money for being on a company’s board of director for two years.”
Lummis summed up:
So let me recap: You leave Treasury; you serve on the board of Reserve Trust for two years; their first application for a master account is denied but after the denial you called the Federal Reserve and Reserve Trust receives a Fed master account — the only state chartered trust company in the country to get one. And you walk away with a million and a half dollars. Something doesn’t smell right with the way this played out.
My state’s companies, my constituents have been stonewalled, have been slow-walked and have not been able to get approval even though they’ve been working with the Fed for two and a half years on our very specific guidelines for getting master accounts. Now, Mr. Chairman, I don’t know the details here because the Fed hasn’t provided any documents we’ve asked about Reserve Trust’s master accounts, but I think this requires additional scrutiny by the committee and I look forward to receiving it.