By Pete Schroeder
WASHINGTON (Reuters) -The Federal Reserve on Tuesday proposed a tiered framework for reviewing applications to obtain a master account with the U.S. central bank as part of an effort to ensure "transparent and consistent" review of those applications.
The proposal would establish a streamlined review process for federally insured institutions that are seeking such accounts, which grant firms access to Fed payment services.
The strictest review would be reserved for firms, like many fintechs, that are not insured and are not directly supervised by banking regulators. The proposal includes a middle ground of moderate review for firms that are not insured but are supervised by banking regulators.
The proposal supplements a May 2021 proposal intended to provide a framework for such accounts. The Fed said the addition is meant to provide more clarity, and comes as a host of nontraditional financial institutions and fintech firms have entered the marketplace.
"With technology driving rapid change in the payments landscape, the proposed guidelines would ensure novel requests for access to Federal Reserve accounts and payment services are evaluated consistently and transparently to ensure a safe and innovative payment system," said Governor Lael Brainard in a statement.
The proposal comes one day before Fed Chairman Jerome Powell is due to begin two days of testimony before Congress, and as fintech firms have complained that they are unable to gain access to the Fed's payments system.
It also comes as Powell's nomination to a second term as the Fed chief, along with the nomination of four others to the Fed's board, are stuck in limbo. Senate Republicans on the Banking Committee in February refused to attend a vote to advance the nominees as part of a fight over Sarah Bloom Raskin, President Joe Biden's nominee to serve as the Fed's top Wall Street regulator, whom Republicans have suggested inappropriately lobbied on behalf of a fintech firm, Reserve Trust, on whose firm she sat. Republicans have also attacked her over past statements expressing support for using financial rules to police climate change.
Republicans, led by Senator Pat Toomey, have questioned Raskin's previous work on the board of Reserve Trust, which obtained a Fed master account, and insisted she has not been sufficiently responsive.
Democrats, including the White House, have defended Raskin, who previously held top posts at the Fed and Treasury Department, and said she complied with all ethics laws in her work.