Former Fed official and ex-SVB risk officer team up to launch bank

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Randal Quarles, the top banking regulator under President Donald Trump who is credited with rolling back post-financial crisis bank regulations, has teamed up with a former risk officer at recently failed Silicon Valley Bank to launch a bank.

They want to tackle what they believe is a growing problem for global financial markets — a dearth of physical dollars.

Unlike a traditional bank, Currency Reserve, which will also be headed by a former top Wall Street dealmaker, does not plan to make loans or take deposits. Instead, according to a description provided to the Financial Times by the firm, it plans to sell and deliver dollars primarily to local banks outside the US.

Currency Reserve showed up this month on a list of applicants seeking regulatory approval to open an account at the US Federal Reserve. This would lower the company’s costs because it would be able to draw cash directly from the Fed.

The list says that Currency Reserve has been designated tier 3, meaning that its application is subject to a stricter review because the bank’s operations fall outside the Fed’s normal regulatory framework. Currency Reserve has not applied for government-backed deposit insurance.

Currency Reserve’s chief executive is Vivek Tyagi, who, according to his LinkedIn page, was a risk officer at Silicon Valley Bank for a year. He left SVB in 2019 to join Goldman Sachs. According to his LinkedIn page he moved to Currency Reserve last year.

Although he is listed as a co-applicant, Quarles and his firm The Cynosure Group are investors in the bank and will have no operational role, according to a person with knowledge of the company. Also named on the application is Richard Ravitch, who briefly served as the lieutenant-governor of New York.

Still, it is Quarles’s involvement that has raised questions from investor watchdog groups. Quarles served as the Fed’s vice-chair of bank supervision from 2017 to 2021. He has recently said he does not believe the Trump administration’s efforts to roll back regulations played a role in the failures of SVB and other banks, or the recent regional banking turmoil.

Quarles declined to comment for this story. Tyagi did not return a request for comment.

“His application is going to be ruled on by people who used to be his subordinates,” said Dennis Kelleher, a lawyer who is the head of Better Markets, an organisation that lobbies for stricter banking regulations. “It smacks of the use and abuse of the revolving door, though whether that is what Randy is doing, I don’t know.”

A person with knowledge of the company said that Quarles had not reached out to his former Fed colleagues on behalf of the bank, and is not involved in the application process.

Quarles and the other founders of Currency Reserve are betting that even with the rise of digital transactions, payment apps and cryptocurrencies, demand to hold and transact with US paper money will continue. This year, US dollar hoarding in Brazil, for instance, led to long bank lines and the emergence of a parallel market where dollars were being sold for slightly more than official exchange rates.

US lenders, which have long had correspondent relationships with foreign banks, have recently been under pressure by regulators to cut ties to overseas financial firms because of concerns about money laundering. That also curtailed the supply of dollars outside the US.

While moving around bags of cash is often associated with something nefarious, Currency Reserve’s executives have said the greatest need for their services is from local banks that service small merchants, many in places that are either visited by US travellers or lack a strong local currency, who want to have the cash to be able to operate in dollars.

“We believe there does continue to be a demand for these services,” said Matthew Hurlock, a former M&A lawyer who was most recently a partner at White & Case and has joined Currency Reserve as general counsel.

“Our ambition is to provide this service better, faster and more efficiently by utilising industry-leading technology.”