In addition to a court challenge against a special-purpose bank chartered by the state of Connecticut, the Federal Reserve is considering broader policy that would block any state bank charters seeking to hold large balances of reserves at the central bank for the purpose of providing a risk-free, relatively high-return deposit product. The Board believes this special “narrow bank” poses monetary and financial-stability challenges that warrant rejection of the charter application, but the bank counters that it is legal in all respects and offers an essential new service.
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