TNB USA Bank sues NY Fed over master account access
Connecticut-based TNB USA Bank is suing the Federal Reserve Bank of New York (FRBNY) for its lack of action over granting a master account.
TNB, which was founded in 2016, says its name stands for “the narrow bank”, and its “business model is indeed” narrow.
Its sole business will be to accept deposits only, and to place those deposits into TNB’s master account at the FRBNY, thus offering higher rates to investors such as companies and pension funds managing large amounts of money.
However, TNB says it needs access to the Federal Reserve payments system to function. In August 2017, TNB began the administrative process to open this account. In its view, this should have been a quick process – i.e. five to seven days.
James McAndrews is TNB’s chairman and chief executive officer. He is a former 28-year employee of the Federal Reserve System, most recently as executive vice-president and head of the Research and Statistics Group at the FRBNY from 2010 through early 2016.
In the lawsuit, TNB believes it did not receive the standard treatment mandated by the governing law.
Connecticut state gave the bank approval; and the FRBNY undertook its own internal review of TNB. This review concluded in “TNB’s favour”. At the same time, the FRBNY also “apparently” referred the matter to the board of governors of the Federal Reserve System in Washington, DC.
In December 2017, TNB was informed “orally by an FRBNY official that approval would be forthcoming – only to be called back later by the same official and told that the board had countermanded that direction, based on alleged ‘policy concerns’”.
There were more meetings and TNB says the board continued to thwart any action by the FRBNY to open TNB’s master account, “reportedly at the specific direction of the board’s chairman”.
The lawsuit is of course from the bank’s perspective – but the delay clearly rankles TNB as it cannot do business.
The bank explains: “The FRBNY has repeatedly refused either to permit TNB to open a master account or to state that the FRBNY will ultimately do so.”
TNB’s lawsuit states that “The FRBNY’s conduct is in open defiance of the statutory framework, its own prior positions, and judicial authority.”
The bank is looking for a “prompt declaratory judgment that it is entitled to a master account”.