News : Crypto isn’t getting a new U.S. rulebook

Friday, February 24, 2023

Crypto isn’t getting a new U.S. rulebook

Feb 24, 2023

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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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There’s no place like home. Mortgage servicers have helped more than 7.5 million families stay in their homes during a national economic crisis fueled by a global pandemic. Servicers are the most important conduit for relief for distressed borrowers and the primary means by which they can recover financially and remain in their home. Mortgage servicers stand ready to help. Learn more: mba.org/lossmitigation.

Driving the Day

The PCE price index is released at 8:30 a.m. and is expected to show inflation remains elevated … Fed Governors Philip Jefferson and Christopher Waller are among the central bank officials appearing at the U.S. Monetary Policy Forum in New York …

Why China’s return might point to a U.S. recession — Victoria Guida has a new piece explaining why the Fed is closely monitoring China as it games out its next steps on inflation.

As Victoria reports, China’s post-Covid re-opening could accelerate global demand – driving prices up and strengthening Jerome Powell and co.’s resolve to hold interest rates higher for longer. Higher for longer means the U.S. would move closer to the precipice of a recession as the economy slows.

Why McHenry’s first big bill has been in flux — House Financial Services Chair Patrick McHenry has made clear he wants to strike bipartisan deals and get major new policy signed into law. The first target on his list — a revamp of data privacy rules in consumer finance — has proven to be a major challenge for him on the left and the right, leaving key details in limbo less than a week out from a committee vote he wants to hold Tuesday.

Eleanor Mueller reports that McHenry was forced to leave the enforcement section of the bill blank in recent weeks — literally just empty brackets — because two obvious options, CFPB enforcement and private lawyers bringing litigation, are third rails in certain GOP camps.

Democrats are expected to oppose the legislation, so McHenry’s team has spent much of its time trying to educate GOP members and their staff so they can figure out what the panel’s majority would be on board with.

Biden’s World Bank pick is a Wall Street veteran — President Joe Biden nominated former Mastercard CEO Ajay Banga to lead the World Bank. Banga, a protege of former Citi CEO Sandy Weill, will face pressure to use the bank’s resources to respond to climate change. But Ben White and Zack Colman report that Banga is a mystery to climate activists and that some are already speaking out against his nomination.

Weekend must-read: POLITICO’s Ukraine invasion oral history — A team of our colleagues talked with more than 30 key figures from the U.S. government and Western allies about what they did in the run-up to Russia’s invasion of Ukraine a year ago today.

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

Crypto

SBF faces more fraud charges — Prosecutors on Thursday hit Sam Bankman-Fried with a new round of fraud charges and revealed new details of how the former FTX CEO allegedly made millions of dollars of illegal campaign contributions.

IMF: Crypto shouldn’t be legal tender — The IMF on Thursday discouraged countries from giving cryptocurrency legal tender status, as part of recommendations for how governments should set policy for digital assets.

A message from Mortgage Bankers Association:

Regulatory Corner

Red states sue the SEC — Reuters reports that four conservative-leaning states are suing the SEC over rules that require investment funds to disclose more information about how they vote on shareholder ballots. Officials from Utah, Texas, Louisiana and West Virginia are bringing the case.

Ozy CEO arrested — Carlos Watson, CEO of the troubled digital startup Ozy Media, was arrested Thursday on charges that he conducted a $50 million fraud against the company’s investors and lenders.

JOIN POLITICO ON 3/1 TO DISCUSS AMERICAN PRIVACY LAWS: Americans have fewer privacy rights than Europeans, and companies continue to face a minefield of competing state and foreign legislation. There is strong bipartisan support for a federal privacy bill, but it has yet to materialize. Join POLITICO on 3/1 to discuss what it will take to get a federal privacy law on the books, potential designs for how this type of legislation could protect consumers and innovators, and more. REGISTER HERE.

Fly Around

Dimon docs sought in Epstein cases — FT: “JPMorgan is facing renewed pressure to hand over documents from longstanding chief executive Jamie Dimon in litigation accusing the bank of keeping the late sex offender Jeffrey Epstein and his associates as customers despite numerous red flags.”

G-20 meeting prep — Reuters: “Global finance leaders will tally the economic damage from Russia's war in Ukraine on Friday as they meet on the conflict's first anniversary with some voicing concerns that more sanctions on Moscow would disrupt a modest improvement in growth.”

Mortgage rates highest since November — WSJ: “The average rate on the standard 30-year fixed mortgage rose to 6.50%, according to a survey of lenders released Thursday by mortgage-finance giant Freddie Mac. Rates were 6.32% a week ago and less than 4% a year ago.”

A message from Mortgage Bankers Association:

Mortgage servicers stand ready to help.

Mortgage servicers have helped more than 7.5 million families stay in their homes during a national economic crisis fueled by a global pandemic. Servicers are the most important conduit for relief for distressed borrowers and the primary means by which they can recover financially and remain in their home. Mortgage servicers are working to help preserve affordable homeownership for struggling borrowers and protect their communities. Learn more: mba.org/lossmitigation.