Bank regulator disputes KC Fed claim about firm linked to Biden

The Colorado Division of Banking on Tuesday objected to the Federal Reserve Bank of Kansas City’s description of how it came to classify fintech company Reserve Trust as a bank.

The dispute represents another headache for President Joe Biden Fed nominee Sarah Bloom Raskin and Democrats hoping to confirm her to be one of the most powerful bank regulators in the world.

The Colorado agency told CNBC that a statement issued by the Kansas City Fed last week “misrepresented” its role in Reserve Trust’s quest in 2017 to eventually acquire a “master account” at the central bank.

Raskin joined Reserve Trust’s board in May 2017, months after leaving her post as the Treasury Department’s deputy secretary, as it worked to retool its application for a Fed master account. The firm was approved for a master account in 2018. Raskin left Reserve Trust in 2019.

The Colorado regulator disputed a portion of the Kansas City Fed’s statement from Feb. 7 that states that, after its first failed request for access to a master account, Reserve Trust “changed its business model and the Colorado Division of Banking reinterpreted the state’s law in a manner that meant RTC met the definition of a depository institution.”

Asked about that characterization and whether its reinterpretation of state law allowed other fintech firms to qualify as banks, Colorado’s banking regulator fired back.

“We consider the statement that the division ‘reinterpreted’ state law as a misrepresentation of our practice,” Rebecca Laurie, a representative for the Colorado Division of Banking, said in an email. “The analysis of the laws is consistent, while what can change outcomes to our analysis are the facts provided by the entity.”

“Further, the Division of Banking has not, nor has the authority, to change, modify or reinterpret any law without engaging in the rulemaking process,” she added.

The Kansas City Fed declined to comment when asked about the Colorado Division’s remarks.

Republicans say Raskin’s communications with the Kansas City Fed and its president, Esther George, are a flagrant example of the “revolving door” between government and corporate interest. Raskin was a member of the Fed board of governors from 2010 to 2014.

Senate Republicans, concerned about Raskin’s purported efforts to leverage her prior government connections to sway the Kansas City Fed into granting Reserve Trust a master account, on Tuesday staged a boycott of the Banking Committee’s vote to recommend her to the broader chamber.

Sen. Pat Toomey, a Republican from Pennsylvania, said that the move was specific to Raskin and that the GOP has no problem voting on the other pending nominations…