BSJI Sues Fed for $150 Million in Damages

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Feb 29, 2024, 16:15 ET

According to the lawsuit, Fed staff ignores federal law, legal precedents and its own longstanding policy to anoint itself arbiter of which financial institutions may operate, regardless of their safety and soundness

SAN JUAN, Puerto Rico, Feb. 29, 2024 /PRNewswire/ -- Banco San Juan Internacional (BSJI), an international bank entity (IBE) formed under Puerto Rican law, today filed an amended lawsuit seeking more than $150 million in damages from the New York Federal Reserve Bank and the Board of Governors of the Federal Reserve System (the Fed). The lawsuit stems from the Fed's termination of BSJI's master account, ignoring Federal law, judicial precedent, and the Fed's own decades-long policy.

"With no accountability, transparency or oversight, the Fed upended a century of public policy underpinning our financial system," said Eric Bloom, BSJI's General Counsel. "Congress requires a level playing field – every eligible depository institution is entitled to a master account. This is based on critical US policy considerations that are not up to the Fed to ignore."

In the lawsuit, BSJI charges that the Fed, in violation of statute and in stark departure from the Fed's historical practices and even its own published guidelines, has adopted a policy that certain types of banks—regardless of a bank's individual bona fides—are not worthy of a master account. In pursuit of this secret policy, the Fed invoked frivolous, pretextual reasons to close BSJI's master account, causing it enormous harm for which it is seeking damages.

BSJI further charges that the Fed acted maliciously and in bad faith, alleging that the Fed reverse-engineered its decision by, among other things:

Ignoring the findings of an independent third-party auditor that the Fed itself approved;
Ignoring the findings of regulators and examiners with relevant jurisdiction and expertise;
Stonewalling BSJI and refusing to engage in a good faith dialogue over the Fed's supposed concerns.

Founded in 2011, BSJI is among the best capitalized banks in Puerto Rico and has in place a rigorous compliance program, scrupulously examined and validated by third party experts, including former Fed officials. The bank has never been accused of any wrongdoing whatsoever, and the lawsuit comes just one week after the U.S. Treasury Department eliminated Puerto Rico's IBEs from its list of "vulnerabilities and risks" related to money laundering.

Under the law, the Fed must provide payment services to all depository institutions that meet specific criteria and reserve requirements, and it must pay interest on each bank's deposits in the Federal Reserve System. Together, these requirements ensure that depository institutions meet minimum safeguards, while giving the Fed ultimate control over US monetary policy.

"The Fed's new policy represents an earthquake in the industry, as it would grant the Fed the absolute right to favor some financial institutions at the expense of others, just because the Fed does not like innovation, modernization or the location of a banking institution," said Bloom. "This degree of overreach by the Fed and its claim of absolute discretion over which institutions may live or die has consequences for the entire financial system. We are looking forward to having this resolved in the courts."

SOURCE BSJI