A new bank, launched by one of the Federal Reserve’s own, is now suing the Fed of New York, accusing the regulator of preventing the bank from moving forward with its business plans.
Reports in The Wall Street Journal said that TNB USA Inc., based in Connecticut, is suing the Fed for its inaction on an application to open an interest-bearing account at the New York Fed.
The account, which reports said is common among many large financial institutions, would allow TNB to provide higher interest rates from the Federal Reserve for its customers, which will primarily be large, institutional money-market investors. Reports said they can include companies, pension funds and others.
The Fed reportedly has not made a decision on the application to open the account, despite TNB beginning the process more than one year ago. The Washington Fed’s board of governors blocked the application citing “policy concerns,” though TNB claims the New York Fed was prepared to approve the application.
A complaint filed in the U.S. District Court for the Southern District of New York is seeking an order for the Fed to open the account.
“We are aware of the lawsuit and are reviewing it,” the Fed said via a statement provided by the Fed board, according to reports.
The bank’s chairman and chief executive is James McAndrews, who had reportedly been with the Fed for nearly three decades. The publication noted that while McAndrews was at the agency, it developed the system it currently uses to set short-term interest rates, a crucial component of TNB’s business model.
Connecticut has granted temporary authorization for TNB to operate as a bank, but it will not provide retail banking services or loans, reports noted.
Rather, TNB said its “sole business will be to accept deposits from the most financial secure institutions,” and to place those funds in a Fed account that yield interest rates of 1.95 percent. The Fed is expected to raise that rate in coming years. According to TNB, opening the account is critical to its goal of “permitting depositors to earn higher rates of interest than are currently available to non-financial companies and consumers.”