Banking regulator challenges KC Fed claim about company linked to Biden nominee Raskin


Sarah Bloom Raskin, appointed Vice Chairman for Oversight and a member of the Federal Reserve Board of Governors, speaks during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing on Capitol Hill in Washington, D.C. DC, USA, February 3, 2022.

Bill Clark | Reuters

Colorado’s banking division on Tuesday 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 poses another headache for Sarah Bloom Raskin, Fed nominee for President Joe Biden, and Democrats hoping to confirm her as one of the world’s most powerful banking regulators.

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

Raskin joined the Reserve Trust board in May 2017, months after leaving his post as deputy secretary of the Treasury Department while working to revamp his application for a main Fed account. The company was approved for a lead account in 2018. Raskin left Reserve Trust in 2019.

The Colorado regulator challenged part of the Kansas City Fed’s Feb. 7 statement that says that after its first application for access to a primary account failed, Reserve Trust “changed its business model and Colorado Division of Banking reinterpreted state law in a way that meant RTC met the definition of a deposit-taking institution.”

Asked about this characterization and whether its reinterpretation of state law allowed other fintech companies to qualify as banks, Colorado’s banking regulator fired back.

“We view the statement that the division has ‘reinterpreted’ state law as a misrepresentation of our practice,” Colorado Division of Banking representative Rebecca Laurie said in an email. “The analysis of the laws is consistent, while what can change the results of our analysis are the facts provided by the entity.”

“Furthermore, the Banking Division does not have, nor does it have the authority to change, modify or reinterpret any law without engaging in the rule-making process,” she added.

The Kansas City Fed declined to comment when asked about the Colorado division’s remarks.

Republicans say Raskin’s communications with the Kansas City Fed and its chairwoman, Esther George, are a glaring example of the “revolving door” between government and corporate interests. Raskin was a member of the Fed’s Board of Governors from 2010 to 2014.

Senate Republicans, concerned about Raskin’s alleged efforts to leverage his prior government connections to get the Kansas City Fed to grant Reserve Trust a primary account, staged a boycott of the Banking Committee vote on Tuesday to recommend it. to the enlarged chamber.

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Sen. Pat Toomey, a Republican from Pennsylvania, said the decision was specific to Raskin and the GOP had no problem voting on the other pending nominations of incumbent Jerome Powell, future Vice President Lael Brainard and Lisa Cook and Philip Jefferson as governors.

Amanda Thompson, a representative for Toomey, said the division’s remarks supported GOP concerns about Raskin’s candidacy.

“The Kansas City Fed claimed there were two reasons why it reversed its decision denying Reserve Trust access to the Fed’s payment system. One reason was that the Colorado Division of Banking reinterpreted state law. It is deeply troubling to learn now – from the Colorado Division of Banking itself – that this assertion is false,” Thompson wrote. “This may explain why the Kansas City Fed has refused to provide requested information about Ms. Raskin’s lobbying of Kansas City Fed Bank President Esther George on behalf of the Reserve Trust.”

“The more we learn, the more questions we have, which is exactly why banking Republicans were right to refuse to move forward with today’s vote,” she added. “Until these issues have been adequately addressed, the Committee should not proceed to a vote on Ms Raskin.”

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

The Republican boycott forced Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, to delay a formal vote on Raskin, along with four other Fed nominees, including incumbent Powell.

“Today, Ranking Member Toomey chose to abdicate his duty to the American people and put our economic recovery in jeopardy, instead of doing his job and showing up to vote on Ms. Bloom Raskin, Dr. Cook , Dr. Jefferson, Governor Brainard and President Powell’s appointments,” Brown said in a statement earlier Tuesday.

A spokesperson for Brown declined to comment for this story.

While the beef of the division may be minor given that the regulator finally approved the Reserve Trust’s status as a depository institution, it nonetheless undermines the power of a document that Democrats and the White House have been using for over a week to tout Raskin’s ethical record.

Jen Psaki, the White House press secretary, alluded to the Kansas City Fed statement earlier Tuesday while defending Raskin’s candidacy.

“Sarah Bloom Raskin is one of the most qualified people to ever serve at the Federal Reserve and has made the strongest ethical commitments in Fed history,” Psaki said. “Even after making numerous disclosures to the Banking Committee, Senator Toomey continued to promote false claims that have already been dismissed by ethics experts, the Kansas City Fed, Reserve Trust founder Sarah Bloom Raskin herself- same, and many more.”

The objection may also draw attention to the first half of the Kansas City Fed’s Feb. 7 statement, which says Reserve Trust changed its business model before Colorado classified it as a bank.

Reserve Trust did not respond to CNBC’s request for comment. CNBC has also contacted the White House.


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