Prepare to dive headfirst into the labyrinthine world of finance and politics, where every move is fraught with intrigue and controversy. Congress’ regulatory scrutiny has been awakened by a fierce partisan brawl, and the spotlight is on a small yet enigmatic Colorado-based fintech firm. Fear not, for Senator Pat Toomey (R-PA) has stepped into the fray with a tenacity that rivals a bulldog’s grip. What makes this crusade particularly intriguing is Toomey’s reputation as a staunch advocate of financial innovation, a role he usually plays with finesse.
However, the object of Toomey’s scrutiny, Reserve Trust, often dubbed “the Stripe for B2B payments,” comes with a twist—it boasts significant connections to prominent Democrats. The questions raised by Toomey about Reserve Trust have been circulating since February, and thus far, the answers have been as elusive as a mirage, even though the stakes might not match Toomey’s fervor.
Let’s rewind to the beginning: Reserve Trust, born in 2016, swiftly sought a “master account” from the Federal Reserve Bank of Kansas City. This coveted status would grant the company direct access to the Federal Reserve’s payment system, enabling it to settle transactions with other member banks using the Fed’s financial muscle. Such applications are a rarity in the fintech realm, as they typically lead to rejection. Reserve Trust, being a state-chartered trust, did not fit the traditional mold. Predictably, the Kansas City Fed rejected Reserve Trust’s application in mid-2017.
Around this time, events took a politically intriguing turn. When Donald Trump assumed office, Sarah Bloom Raskin, former Deputy Treasury Secretary and a former governor of the Federal Reserve Board, resigned from her post. She subsequently joined Reserve Trust’s board and received equity as compensation. According to Toomey, Raskin made a curious phone call to Kansas City Fed President Esther George shortly after Reserve Trust’s initial rejection. The following year, the Kansas City Fed reversed its decision, granting Reserve Trust a coveted master account—a privilege typically reserved for federally recognized banks and similar institutions. It marked Reserve Trust as the first and seemingly only nonbank to secure this status.
This year, the spotlight intensified when Raskin was nominated to oversee banks at the Federal Reserve. Under the glare of congressional scrutiny, the Kansas City Fed issued a statement explaining that Reserve Trust had “changed its business model,” and the Colorado Division of Banking had reinterpreted state law in a manner that aligned with the definition of a depository institution.
While the legal intricacies loom large, the narrative takes another twist. Raskin departed from Reserve Trust in 2019 and subsequently sold her stock in the company for a hefty $1.5 million. However, her husband, Representative Jamie Raskin (D-MD), inadvertently found himself embroiled in controversy, failing to disclose her role in the company until eight months after the stock sale—a clear violation of Congressional rules. This lapse played a role in Sarah Raskin’s withdrawal from her nomination earlier this year.
The story doesn’t conclude here. Senator Toomey has now revealed that the Kansas City Fed has revoked Reserve Trust’s master account. While The Observer attempted to verify this development with the company, no response was forthcoming. Intriguingly, Reserve Trust’s website once prominently featured its Fed master account status as of June 10, but this information has since vanished, leaving behind a vague and minimalist webpage. Dennis Gingold, one of the company’s founders, revealed that he and other board members had sold their shares to one of the company’s major investors, QED Investors. Notably, one of QED’s partners, Amias Gerety, had previously worked alongside Sarah Raskin at the Treasury. Gerety proudly touted QED’s relationship with the Fed when it led Reserve Trust’s Series A funding round in 2021.
The reasons for the apparent revocation of the master account remain shrouded in mystery, with no public explanations forthcoming. However, one thing is certain—Senator Toomey shows no signs of letting this issue fade into obscurity.
As the dust settles, we ponder the implications of this complex saga:
**Did the master account bestow an advantage upon Reserve Trust?** Undoubtedly. This distinction served as a pivotal selling point, attracting customers who might have sought alternatives and contributing to the firm’s successful fundraising efforts, totaling $35.5 million. If indeed revoked, this could deliver a crippling blow to the company.
**Was Sarah Raskin transparent about her interactions with the Kansas City Fed?** Regrettably, no. Despite ample opportunities during her confirmation hearing, she failed to provide a clear explanation of her role, creating a cloud of suspicion that may forever tarnish her chances of gaining Congressional approval for any future government position.
**Was the Fed mistaken in granting Reserve Trust a master account?** Morally or legally, it’s unlikely. While the apparent revocation might appear unwise in hindsight, applications for master accounts are governed by rules. Provided these rules were adhered to, second-guessing such decisions remains a futile exercise. However, the logistical repercussions may be significant, as other nonbank entities may now question why they aren’t similarly qualified for master accounts. In fact, Custodia, a Wisconsin-based financial firm, has filed a legal complaint against the Fed and the Kansas City Fed, alleging that they unlawfully declined Custodia’s application for a master account.
