When Divergent Regulation Turns Reserve Banks into Policymakers

Abstract

This article describes the emerging between regional Federal Reserve banks as they are faced with questions regarding banks serving state-licensed marijuana businesses. The article provides detailed background on the legal conflicts that result from the movement by some states to legalize both recreational and medicinal marijuana businesses while federal law prohibits financial institutions from serving them.The focus of the article then shifts to the Federal Reserve System, which has become a critical player in the financial regulatory response to marijuana banking because of the regional Feds' gatekeeper role in the payment system. The article provides new analysis of recent court rulings regarding the Kansas City Fed’s blocking of a Colorado credit union organized to serve marijuana customers from accessing the payment system and how that contradicts actions taken by the San Francisco Fed, which has generally allowed access to financial institutions serving marijuana firms. The article concludes by analogizing the opposing actions of the two reserve banks to a circuit split as it occurs between federal appellate courts and concludes that although it was not the intent of Congress to provide individual reserve banks policy-making authority, once that authority is recognized, it may extend beyond marijuana.