State bank regulators contradict KC Fed’s claim concerning Raskin-linked fintech firms

State bank regulators contradict KC Fed's claim concerning Raskin-linked fintech firms

February 17, 2022: On Tuesday, the Colorado Division of Banking objected to the Federal Reserve Bank of Kansas City’s description of how it came to classify fintech company Reserve Trust as a bank.

The dispute represents one more headache for President Joe Biden Fed nominee Sarah Bloom Raskin and Democrats that hope to confirm her to be one of the most potent bank regulators in the world.

The Colorado agency told CNBC that a statement issued by the Kansas City Fed in the previous week “misrepresented” its role in Reserve Trust’s quest in 2017 to eventually acquire a “master account” at the central bank.

Raskin is joining Reserve Trust’s board in May 2017, months after leaving her post as the Treasury Department’s deputy secretary; then, it worked to retool its application for a Fed master account. The firm was approved for a master account in 2018. Raskin went out of the Reserve Trust in 2019.

The Colorado regulator disputed a portion of the Kansas City Fed’s statement from February 7 that states that, after its failed request for access to a master account, Reserve Trust “changed its business model and the Colorado Division of Banking reinterpreted the state’s law in a manner that is meaning RTC met the definition of a depository institution.”

Asked about that characterization and if its reinterpretation of state law allowed different fintech firms to qualify as banks, Colorado’s banking regulator fired back.

“We can consider the statement that the division ‘reinterpreted’ state law as a misrepresentation of our practice,” Rebecca Laurie, a representative for the Colorado Division of Banking, said. “The analysis of the laws is consistent, while the change outcomes to our analysis are the facts provided by the entity,” Laurie added.

“Further, the Division of Banking has not, nor has the authority, to change, modify or reinterpret any law without engaging in the rulemaking process,” she further said.

Senate Republicans, concerning about Raskin’s purported efforts to leverage her prior government connections to sway the Kansas City Fed into granting Reserve Trust a master account, staging a boycott of the Banking Committee’s vote to recommend her to the broader chamber.

Republicans said that the Democrats could move forward with the four different nominations if they agree to hold Raskin back for further questioning.

The Republican boycott is forcing Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, delaying the formal vote on Raskin and four other Fed nominees, that include incumbent Powell.

“Today, Ranking Member Toomey chose to abdicate his duty to the American people and put our economic recovery at risk by not doing his job and showing up to vote on Ms. Bloom Raskin, Dr. Cook, Dr. Jefferson, Gov. Brainard, and Chair Powell’s nominations,” Brown said earlier on Tuesday.

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State bank regulators contradict KC Fed’s claim concerning Raskin-linked fintech firms