A former Federal Reserve official is suing the Fed for blocking his plan to create a new kind of bank, saying it is putting the interests of big Wall Street banks ahead of their large customers, The New York Times reports.
The lawsuit, filed in federal court last week, accuses the Fed chairman, Jerome H. Powell, of preventing the new bank, known as TNB USA, from operating. James McAndrews, who filed the lawsuit, says that Powell directed
Fed staffers to withhold permission for his bank to open an account at the Federal Reserve Bank of New York—a necessary precursor for TNB USA to open its doors.
“We are aware of the lawsuit and we are reviewing it,” a Fed spokeswoman said.
TNB USA would function quite differently from existing banks. It would not make any loans. Instead, it would put all of its customer deposits into an account at the New York Fed.
The bank is seeking to take advantage of a space that the Fed created in 2015 when it overhauled the mechanics of monetary policy. Before the 2008 financial crisis, when the Fed wanted to slow economic growth, it drained money from the financial system. Now, instead of removing money from the system, the Fed seeks to immobilize money by paying banks to maintain deposits at the Federal Reserve.
McAndrews said he met with Fed officials and was given the impression the bank’s application would be approved. But, according to the lawsuit, the Fed has withheld permission “at the specific direction of the board’s chairman,” a reference to Powell.
