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A novel financial institution that would pass deposits directly into a Federal Reserve master account announced it was denied access to a Fed master account.
Novel Banking Model: The Narrow Bank would place deposits at the Fed on behalf of institutional investors that don’t have access to the central bank, allowing them to earn guaranteed interest on their deposits directly from the Fed.
Fed Denial: The Connecticut-based startup released a December letter from the Federal Reserve Bank of New York denying the entity access to a Fed master account. While the New York Fed cited the entity’s risks to financial stability, a separate letter from the Narrow Bank CEO—a former Fed official—defended his firm’s business model and urged the agency to reconsider.
ICBA View:
ICBA in 2019 expressed support for a Fed regulatory amendment that would lower the rate of interest paid on excess balances for narrowly focused depository institutions like Narrow Bank given their less stringent capital standards and the business model’s potential impact on securities dealers.
In a separate comment letter last year, ICBA said master account access should be limited to regulated funds to protect the integrity of the financial system.
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