Federal lawsuit filed by Puerto Rican bank seeking $150 million in compensation for alleged damages

In a significant turn of events, Banco San Juan Internacional (BSJI) has filed an amended lawsuit seeking damages exceeding $150 million from the Federal Reserve Bank of New York and the Fed's board of governors. The lawsuit stems from the Fed's decision to terminate BSJI's master account, a move that the bank contends upends a century of public policy underpinning the financial system.

The master account was granted to BSJI in 2012, but the Fed denied its application for renewal in December 2018, more than six years after it was initially applied for. Eric Bloom, BSJI's general counsel, stated that the Fed's actions had irresponsibly changed the framework of a century-old public policy foundation supporting our financial system.

The lawsuit was filed in the U.S. District Court for the Southern District of New York. In the suit, BSJI argues that Fed staff ignored federal law and legal precedent, and drifted away from its own historical practices. The bank claims that it improved its compliance while the master account was suspended, a claim that was reportedly overlooked by the Fed.

The lawsuit also claims that the Fed overlooked the findings of an independent third-party auditor and local regulators. This oversight, according to BSJI, is a violation of the requirement for a level playing field, as stipulated by Congress, which entitles every eligible depository institution to a master account.

The New York Fed suspended BSJI's account in 2019, citing a probe into a loan it approved to oil company Petroleos de Venezuela, which was subject to sanctions. However, the lawsuit does not mention any bullet point about purchasing licensing rights.

The Fed's decision to terminate BSJI's master account has sparked a broader debate about the Fed's master accounts. In 2022, the debate made its way into public conversation, with Republicans accusing Sarah Bloom Raskin of using her influence to help Reserve Trust gain a Fed master account. More recently, Nathan Miller, a spokesperson for Custodia, has accused the Fed of displaying a "general bias against digital assets."

The central bank must pay interest on each bank's deposits within the Federal Reserve System, and the master account provides payment services to all depository institutions that fulfill specific criteria and reserve requirements. The Fed's role in this system is crucial, as it ensures the smooth functioning of the financial system, a responsibility it cannot ignore, according to Eric Bloom.

The International Monetary Fund (IMF) announced in a statement that Eric Bloom, the General Counsel of Banco San Juan Internacional, declared that the Fed had irresponsibly changed the framework of a century-old public policy foundation supporting our financial system. The outcome of this lawsuit could have far-reaching implications for the Fed's role in the financial system and its relationship with the banks it oversees.

Federal lawsuit filed by Puerto Rican bank seeking $150 million in compensation for alleged damages