The Federal Reserve allegedly withheld key documents that could have severely impacted a Federal Reserve nominee ahead of a potential confirmation vote, leading many to call for increased transparency and reform for the nation’s central bank.
Sen. Pat Toomey (R-PA), the ranking member of the Senate Banking Committee, and committee Republicans asked Federal Reserve Chairman Jerome Powell for all correspondence relating to Reserve Trust, a fintech company that had received the lucrative Fed master account while Sarah Bloom Raskin served on the board of the company.
A Fed master account allows the company to earn interest on deposits at the Fed and eases the company’s ability to transfer large sums of money.
Raskin at the time was tapped by President Joe Biden to serve as the Fed vice chair for supervision, and many Senate Banking Committee Republicans grilled Raskin over whether she used her influence as a former Fed governor to secure the Fed master account.
“You leave Treasury, you serve on the board of Reserve Trust for two years, their first application for master account is denied, but after the first denial, you call the Federal Reserve and Reserve Trust receives a master account,” Sen. Cynthia Lummis (R-WY) told Raskin during a confirmation hearing in February. “The only state-chartered trust company in the country to get one, and you walk away with a million and a half dollars. Something doesn’t smell right with the way this played out.”
When asked about her alleged pressuring of the Fed to grant her company a master account, she reportedly could not recall or was not aware of how to answer more than 35 questions from Toomey.
“Ms. Raskin is either suffering from the greatest case of selective amnesia since the FBI interviewed Hillary Clinton about her email server, or she is lacking candor with Congress because she knows this was a dirty use of Washington’s revolving door,” Amanda Thompson, a spokesperson for Senate Banking Committee Republicans, said in February. “Even though Ms. Raskin claims not to recall whether she lobbied the Fed on behalf of Reserve Trust, she asserts, without any sense of irony, that if she did do it, it was done so ethically and entirely above board.”
Toomey even led a blockade of her nomination after the Fed and Raskin refused to divulge information about her role in seeking a Fed master account.
Senate Banking Republicans were shocked to find that the Fed responded to a Freedom of Information Act (FOIA) request by the American Accountability Foundation (AAF), not the committee, and that the Fed indeed had documents relating to Raskin and Reserve Trust.
Although Biden withdrew her nomination for the Fed, the questions surrounding her relationship with the Fed and Reserve Trust could have had swayed many senators’ opinions about whether to vote to confirm her for the Fed post.
The committee Republicans said that the Fed’s lack of transparency and accountability underscores the need for reform to the Fed and Federal Reserve regional banks:
Unfortunately, obstructionism has become too common a response from the Fed and regional Fed banks—which, after all, are creatures of Congress—to congressional oversight inquiries from members in both parties. In this case, the harm of that obstructionism was magnified because it also impeded the Senate’s constitutional responsibility to evaluate a presidential nomination. In light of this persistent refusal to comply with reasonable requests for information, we have no choice but to pursue legislation that will compel these public institutions to be more transparent and accountable to Congress.
Toomey has floated some ideas to make the Fed more accountable, which include:
- Making the regional Fed banks subject to FOIAs
- Subject regional Fed president to presidential appointment and Senate confirmation; Sen. Jack Reed (D-RI) has proposed this idea for the New York Fed President
- Consolidate the regional Fed banks or eliminate them altogether
The letter Senate Banking Committee Republicans wrote to Powell was the first time that a majority of committee Republicans floated reform for the Federal Reserve.