Controversy Arises Over Fed's Approval of Numisma Bank's Master Account

Numisma Bank, a tier 3 uninsured bank co-founded by a former Fed official, is poised to benefit from a master account. Caitlin Long, CEO of tier 3 Custodia Bank, has raised concerns.

Numisma Bank has received conditional approval for a Federal Reserve master account, providing the small bank access to the Fed’s liquidity facilities and prompting questions about the Fed’s criteria for approval, according to Fox Business and American Banker.

Based in Greenwich, Connecticut, Numisma is a tier 3 institution, meaning it is state-chartered and not insured by the Federal Deposit Insurance Corp. Historically, tier 3 institutions have often been denied Fed master accounts. Recent denials include Wyoming-chartered Custodia Bank and TNB, due to being deemed “unsafe and unsound” and posing “undue risk,” respectively.

However, Numisma was co-founded by former Fed Vice Chair for Supervision Randal Quarles. The only other tier 3 bank to have been granted a Fed master account in recent years was the now-defunct Reserve Trust, which obtained a master account in 2018 and had former Fed vice chair Sarah Bloom Raskin on its board.

Custodia Bank CEO Caitlin Long expressed her concerns on X regarding 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.

“Consider 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, yet suddenly a bank with the same regulatory structure is approved by the Fed — and an ex-Fed governor is involved?”

A spokesperson for Numisma 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 stated in an email to American Banker that his involvement with Numisma, as one of five co-founders of its predecessor Currency Reserve, was “solely a modest investment in the firm.”

Nevertheless, 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.”