The Federal Reserve’s recently proposed guidelines for evaluating master account access requests undermines the dual banking system and the value of the state financial system, CSBS said in a comment letter today.

In March, the Federal Reserve issued a supplemental notice and request for comment on its proposed guidelines for evaluating requests for access to Reserve Bank accounts and services. The added three-tiered review framework based on an institution’s characteristics introduces new areas of uncertainty, regulatory opaqueness, and potential regulatory arbitrage rather than the intended clarification.

Specifically, Tier 2 would favor federally chartered institutions and create an unlevel playing field for state-chartered institutions, and Tier 3 would apply the strictest level of review to only state-chartered entities, suggesting that federal regulation and supervision are more robust. 

“The evaluation of account access and service requests cannot be equitable and impartial when the application and robustness of prudential requirements is arbitrarily based on the identity of the chartering authority, rather than the substance of the actual, applicable supervisory regimen – whether state or federal,” the letter said. 

CSBS asked the Federal Reserve to reconsider the proposed tiering framework to ensure that access to Reserve Bank accounts and services be afforded to eligible institutions on an equitable and impartial basis, regardless of whether they are state chartered or federally chartered.