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B a n k i n g & F i n a n c e
TNB, that interest would then be passed
on to the account holder.
Discouraging delays
Although earlier forms of narrow
banks were credited with saving
some institutions during the Great
Depression of the 1930s, TNB's business
plan hit a snag when it applied for a
master account with the New York Fed
to launch its services.
Aer hearing nothing about its
application for more than a year, TNB
filed a lawsuit on Aug. 31, 2018, "to
enforce the bank's legal right to a master
account," McAndrews said. e Fed
finally spoke in March 2019, advising
that it was in the process of writing
new regulations that related to TNB's
application and outlining its concerns
about the business model.
Narrow banks could impact the larger
economy by attracting more funds
to the Fed and disrupting the larger
banking markets, according to the Fed.
Narrow banks could also poach major
clients from regular banks, reducing
their assets and making it harder for
everyone to get loans. In a time of
crisis, the appeal of narrow banks could
crash the regular banking system, the
Fed said.
"Narrowly focused depository
institutions (pass-through investment
entities or PTIEs) could theoretically
attract a very large quantity of deposits
from institutional investors," reads the
notice of proposed rulemaking issued
by the Fed in 2019. "Deposits at PTIEs
could significantly reduce financial
stability by providing a nearly unlimited
supply of very attractive safe-haven
assets during periods of financial
market stress."
In 2020, the New York Fed
successfully got TNB's lawsuit dismissed
on grounds that it was still deciding
on the bank's application. As of press
time, the final ruling on TNB was
still pending.
Meanwhile, the state banking
department issued two extensions on
TNB's temporary certificate, with the
third coming this February.
McAndrews and his team are still
hoping for good news. In the meantime,
he works as a consultant from his home
in Philadelphia, "while we sit on our
thumbs waiting for the Fed to move, so
to speak."
TNB's experience with Connecticut
banking regulators has been a
bright spot in the experience,
McAndrews said.
"e Department of Banking and
Commissioner [Jorge] Perez have been
extremely professional," McAndrews
said. "We are waiting for the Federal
Reserve to make these rulings and move
forward on our account application." n
Lending businesses money is
one thing. Lending customized
support is our thing.
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