Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. It’s safe to call it — crypto isn’t going to get special treatment from Congress any time soon. Regulators are now filling the void and sending hints that they believe the old-school rules of finance work just fine. Thursday’s joint crypto policy statement from the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency underscored the new dynamic. The agencies warned banks that they — can you believe it? — should think twice about accepting deposits from crypto startups. Regulators care because deposits are a critical source of funding for banks. Flighty crypto customers and potentially unstable stablecoin reserves pose a risk to that funding. The statement sent a new, obvious signal — just like earlier warnings the agencies have issued in recent weeks — but the message was rooted in existing policy. Old rules in a fresh package. “It’s important to note that the agencies emphasize that there’s nothing new in this statement,” said Karen Petrou, managing partner of Federal Financial Analytics, told MM. “Translation: If a bank has experienced crypto-related funding risk, enforcement actions under old rules have standing and are on their way.” That’s just the way Senate Banking Chair Sherrod Brown — an outspoken crypto critic — wants it to be. He notched it as a victory. “This is the right step to provide more clarity to banking organizations and protect people’s hard-earned money as we continue to consider a comprehensive regulatory framework for digital assets,” the Ohio Democrat said in a statement. It’s unclear how much energy Brown will spend on crypto legislation in his space, which could include questions about not just banking regulators but also thorny issues around the role of the SEC. It’s also unclear how lawmakers like Brown and Sen. Elizabeth Warren (D-Mass.) — who also sees little use for digital currency — would ever align with innovation-loving Republicans like House Financial Services Chair Patrick McHenry (R-N.C.) and Majority Whip Tom Emmer. “I don’t know if the Overton window of those individuals overlap at all on crypto,” DeFi Education Fund policy director Miller Whitehouse-Levine told MM. So Thursday’s warning from bank regulators — not to mention rolling enforcement actions from other agencies — is probably the closest the crypto community will get to clear U.S. policy toward the industry for the foreseeable future. And it’s not accommodating. As BTIG director of policy research Isaac Boltansky pointed out to MM, regulators were relieved with how well the traditional banking system fared in the face of crypto winter. Why shake things up? “Everything at the end of last year — from FTX to crypto’s market cap falling out of bed — emboldened crypto opponents and bent the arc of the regulatory response toward the more restrictive end of the spectrum,” he said. “We have seen in real-time as the view of crypto among prudential regulators has shifted from circumspect to somewhere between structural skepticism and outright disdain.” Enjoy your Friday — Before you shut down, send a scoop our way. We’re zwarmbrodt@politico.com and ssutton@politico.com.
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