Numisma Bank has been granted conditional approval of a Federal Reserve master account, giving the small bank access to the Fed’s liquidity facilities and raising questions about what exactly the Fed prioritizes in its approval process, according to Fox Business and American Banker.
Greenwich, Connecticut-based Numisma is a tier 3 institution, meaning it’s chartered by the state and not backed by the Federal Deposit Insurance Corp. Tier 3 institutions have most often been denied Fed master accounts. Recently, denials include Wyoming-chartered Custodia Bank and TNB, on the basis that they were “unsafe and unsound” and would cause “undue risk,” respectively.
Numisma was co-founded, though, by former Fed Vice Chair for Supervision Randal Quarles. The only other tier 3 bank that has been granted access to a Fed master account in recent years was now-defunct Reserve Trust, which was granted a master account in 2018 and had former Fed vice chair Sarah Bloom Raskin on its board.
Custodia Bank CEO Caitlin Long raised questions on X about Numisma’s approval.
“I AM SPEECHLESS. Is this what it appears to be — special treatment by the Fed for another former insider, just weeks after the Fed’s Inspector General ‘suspended’ its investigation into the Fed’s master account practices?” she wrote.
“Read what the Federal Reserve said about Custodia Bank — that a 100% cash reserved, non-FDIC insured, state-chartered bank without a federal regulator is inherently unsafe & unsound. The Fed’s Custodia denial order went into excruciating detail about why these issues are not curable, but suddenly a bank with the same regulatory structure got a pass by the Fed — and an ex-Fed governor is involved?”
A Numisma spokesperson told Fox Business that Quarles had “no formal or informal role in Numisma Bank’s master account application process, which occurred well after his departure from the Federal Reserve.”
“Mr. Quarles’ name was never mentioned during any discussion between Numisma Bank and the Federal Reserve during the application process,” the spokesperson said.
Quarles told American Banker via email that his involvement with Numisma, though he was one of five co-founders of Numisma predecessor Currency Reserve, “consists solely of a modest investment in the firm.”
Still, former Office of the Comptroller of the Currency regulator Michele Alt, a partner at consulting firm Klaros Group, told American Banker that Numisma’s approval “is a bad look for the Fed.”
“I think there is pressure to share the distinguishing features of the Numisma application and I also think there will be significant pressure on the Fed to approve other tier 3s that meet whatever criteria the Fed found persuasive about Numisma's applications,” she said.
David Zaring, a professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School of Business, told Fox Business that the “optics here are pretty uncomfortable for the Fed. What you have here are people who know how the Fed likes to run the show and benefiting from the inside knowledge.”
A spokesperson for the Fed didn’t immediately respond to a request for comment.
