The Colorado Division of Banking objected Tuesday to the Federal Reserve Bank of Kansas City's description of how the Fintech Reserve Trust came to be classified as a bank.
The dispute is another headache for President Joe Biden's Fed candidate, Sarah Bloom Raskin, and Democrats hoping to confirm her as one of the world's most powerful banking regulators.
The Colorado agency told CNBC that a statement from the Kansas City Fed last week "misrepresented" its role in Reserve Trust's 2017 quest to eventually acquire a "master account" with the central bank.
Raskin joined the Reserve Trust board of directors in May 2017, months after leaving her post as an undersecretary at the Treasury Department while working to transform her application for a master account from the Fed. The firm was approved for a master account in 2018. Raskin left the Reserve Trust in 2019.
Colorado regulators questioned part of the Kansas City Fed's February 7 statement, which said that after its first unsuccessful request for access to a master account, the Reserve Trust "changed its business model and the Colorado Division of Banking violated the Law of the…State reinterpreted in a way that meant that RTC met the definition of a depositary.”
When asked about this characterization and whether the reinterpretation of state law allowed other fintech companies to qualify as banks, Colorado's banking regulator responded.
"We view the statement that the department '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 the findings of our analysis may be altered by the facts provided by the entity."
“In addition, the Division of Banking has no authority or authority to change, modify or reinterpret any law without participating in the rulemaking process,” she added.
The Kansas City Fed declined to comment when asked about the Colorado Division's comments.
Republicans say Raskin's communications with the Kansas City Fed and its president Esther George are a blatant example of the "revolving door" between government and corporate interests. Raskin served on the Federal Reserve Board of Governors from 2010 to 2014.
Senate Republicans, concerned about Raskin's alleged efforts to use his past government connections to persuade the Kansas City Fed to give the Reserve Trust a master account, boycotted Tuesday's Banking Committee vote to propose to the camera in general.
Sen. Pat Toomey, R-Pennsylvania, said the move was specific to Raskin and that the GOP had no problem taking notice of incumbent President Jerome Powell, prospective Vice President Lael Brainard, Lisa Cook and Philip Jefferson's upcoming nominations for vote as governors.
Amanda Thompson, Toomey's representative, said the department's comments support the GOP's concerns about Raskin's candidacy.
The Kansas City Fed has claimed that there were two reasons why it reversed its decision to deny the Reserve Trust access to the Fed's payment system. One reason was that the Colorado Division of Banking was reinterpreting the condition. It is deeply disturbing to learn now, from the Colorado Division of Banking itself, that this claim is false,” Thompson wrote. "This may explain why the Kansas City Fed has refused to release requested information regarding Ms. Raskin's lobbying of Kansas City Fed Bank President Esther George on behalf of the Reserve Trust."
“The more we learn, the more questions we have, and that is exactly why the Bank Republicans were right to refuse to proceed with today's vote,” she added. "Until these issues have been properly addressed, the committee should not proceed with a vote on Ms. Raskin."
Republicans say Democrats could proceed with the other four nominations if they agree to hold Raskin for further questioning.