Amanda L. Baker, Matthew Bisanz, Elizabeth A. Raymond, and Jeffrey P. Taft*
The Board of Governors of the Federal Reserve System ("FRS") has proposed guidelines that the regional Federal Reserve Banks ("FRBs") would use to evaluate requests for accounts and payment services (the "Proposed Guidelines").1 As discussed in Operating Circular No. 1, an institution has the option to settle its FRB services transactions in its master account with an FRB or in the master account of another institution that has agreed to act as its correspondent. The Proposed Guidelines would apply to requests for either arrangement.2
In recent years, institutions with novel types of banking charters have requested access to FRB services (including FRB accounts) to support the introduction of new financial products and delivery mechanisms for traditional banking services. Historically, FRBs have relied on informal or nonpublic criteria to evaluate such requests and often refrained from making any public comments.
The Proposed Guidelines are intended to bring transparency and consistency to this process and ensure that FRBs consider the broader ramifications of their decisions.
This article describes the background to and content of the Proposed Guidelines.
BACKGROUND
The regional FRBs provide financial services to depository institutions, including banks, credit unions, and savings and loans, much like those that institutions provide for their customers.3 These services include collecting checks, electronically transferring funds, and distributing and receiving cash and coin.4 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.
Historically, access to FRB services was limited to institutions that were members of the FRS, were depository institutions under Section 19 of the Federal Reserve Act, or were authorized to hold an account under another authority (e.g., U.S. branches and agencies of foreign banks, Edge and Agreement corporations).
In certain circumstances, other institutions could be granted access to FRB services on a case-by-case basis, such as was granted to certain international financial entities that are organized under the laws of Puerto Rico.5 Under the proposed principles, legal eligibility is only one of several...
