Crypto’s safe space on Capitol Hill

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Mar 10, 2023 View in browser   By Zachary Warmbrodt Presented by 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. Beat-down crypto advocates have a new spot to gather and vent about Washington regulators: The House Financial Services Committee. Committee Republicans opened their doors Thursday at a hearing that had a clear bent, based on the title alone: “Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem.” What emerged was an initial step by Republicans — backed up by testimony from crypto executives and a former Trump administration bank regulator — to make the case that Congress needs to intervene with a new rulebook for the industry as it faces a U.S. crackdown under decades-old regulations. That’s great news for crypto firms that are fed up with the SEC and federal banking agencies. The gathering was an attempt to move beyond the fallout of the FTX collapse, which scrambled the Washington crypto debate by revealing indisputable mismanagement across the industry. The debacle has emboldened crypto skeptics on Capitol Hill and made industry-friendly bills a harder sell. House Republicans are now leveraging the meltdown as a reason to press ahead with comprehensive digital asset legislation — going beyond smaller-scale bills that have been the committee’s focus until now. Rep. French Hill, who chairs the digital assets subcommittee that held the hearing, has tried to make clear in his new position that he holds a degree of skepticism about crypto’s place in the economy. He said Thursday that he’s a strong proponent of “same risks, same activities same rules.” He wants to create “a functional framework that’s tailored to the specific risks of digital assets.” But his questions indicated the Republican path forward. He teed up crypto industry criticism of how the SEC and the federal banking regulators are approaching the space — casting doubt on the “come in and register” pitch by the SEC and building a record for a potential regulatory regime custom-fit for crypto. “We all recognize that inside or outside a regulatory framework we can still have huge financial challenges and criminal issues as well,” he said, citing the dot-com bust and the mortgage crisis. “In my view, you’re better off with that regulatory framework.” Crypto executives love the open-minded approach as they get pummeled elsewhere in Washington (a top Fed official compared crypto investment to tulip mania on Thursday morning). “We’re confident whatever set of standards [House Financial Services Chair Patrick McHenry] may propose are going to reflect not only market realities but the need to protect consumers and keep investors safe,” Coinbase chief legal officer Paul Grewal, who testified Thursday, told MM. “His thought and care and attention are something I have a lot of confidence in.” Happy Friday — Did we miss anything this week? Send tips to zwarmbrodt@politico.com and ssutton@politico.com.   A message from the Electronic Payments Coalition: CONVENIENCE STORES, NOT CREDIT CARDS, ARE RAISING COSTS FOR CONSUMERS: Corporate convenience store chains and their special interest allies are trying to trick Congress into believing that interchange rates on credit card transactions are increasing. The truth: it’s exactly the opposite. Over the last decade, retailers and merchants have received billions of dollars due to the Durbin Amendment—but haven’t lowered prices for consumers as they promised. Learn more.   Driving the Day February jobs numbers are out at 8:30 a.m. … Treasury Secretary Janet Yellen testifies at House Ways and Means at 9 a.m. … House Financial Services has a flood insurance hearing at 9 a.m. … POLITICO interview: San Francisco Fed Chair Mary Daly — Daly talked to our Victoria Guida about how the Fed’s next decision on rates hinges on today’s jobs numbers and next week’s CPI data. Hot employment and CPI reports would mean “we're going to need to go higher in all likelihood, and we're going to need to stay there longer,” she said. Labor strife inside the Fed — Victoria also reports that cafeteria workers at the New York Fed voted to authorize a strike over pay. Visa, MasterCard back off plan to track gun purchases — Bloomberg reports that the two payments giants — as well as Discover and American Express — are pausing work to track firearms sales after Republican state officials introduced bills to limit the effort. FTC fights ICE-Black Knight deal — The FTC on Thursday sued to block Intercontinental Exchange’s $13 billion acquisition of mortgage data company Black Knight. The agency said the takeover would reduce competition in key parts of the mortgage process, raising costs for lenders and homebuyers. Biden targets wealthy, big business — President Joe Biden’s $6.8 trillion budget proposes tax hikes on wealthy Americans and corporations, plus $3 trillion in deficit reduction. POLITICO reporters across our vast policy teams broke down how Biden’s budget can also be read as a potential 2024 campaign platform, covering everything from China to housing policy.   A message from the Electronic Payments Coalition:   Climate House Republicans tackle the flood insurance gap — A House Financial Services hearing this morning will kick off the committee's work on reauthorizing the National Flood Insurance Program, which has been coasting on short-term extensions without big changes since 2017. As part of an effort to expand the uptake of flood coverage, Republicans are reviving a push to support private insurance companies that want to offer flood policies in competition with the dominant government option. “I'm hopeful that we can provide some certainty for the market,” Rep. Warren Davidson, who will chair the housing and insurance subcommittee hearing, told our Eleanor Mueller. “Hopefully we can quickly reach consensus on a way to make the current system a little better and more competitive for the private sector market as well." One of the hearing’s witnesses, Julian Enoizi with reinsurance broker Guy Carpenter, will tout a new pilot program in New York that will use a parametric insurance contract to cover assistance payments to homeowners impacted by flooding. Parametric contracts are increasingly in vogue in the insurance world, offering faster, preset payouts tied to specific triggering events.   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.     Markets Banks take a beating on bond worries — The FT reports that investors wiped $52.4 billion off the market value of JPMorgan Chase, Bank of America, Citigroup and Wells Fargo Thursday, amid investor fears over the value of the lenders’ bond portfolios. It appears to have been sparked by problems at the tech-focused Silicon Valley Bank, which revealed Wednesday it lost about $1.8 billion after selling securities in response to a decline in customer deposits. “The steep losses on the sale of the SVB securities shifted investor attention to the risks that might be lurking in the huge bond portfolios held by other US banks, many of which invested an influx of deposits amid the coronavirus pandemic into long-dated securities such as Treasuries,” according to the FT. Venture capital firms including Peter Thiel’s Founders Fund advised their portfolio companies to pull money from Silicon Valley Bank, Bloomberg reports.   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.     Crypto New York AG says Ether is a security — New York Attorney General Tish James claims that the popular crypto token is an investment security in a new lawsuit against the KuCoin exchange. It puts her at odds with policymakers like CFTC Chair Rostin Behnam who have said that Ether has characteristics of a commodity. Fly Around Treasury encourages trading firms to ship Russian oil — FT: “The US has privately urged some of the world’s largest commodity traders to shed concerns over shipping price-capped Russian oil, in a bid to keep supplies stable and regain some oversight of Moscow’s exports.” Goldman banker sentenced in corruption case — Reuters: “Former Goldman Sachs banker Roger Ng was sentenced to 10 years in prison on Thursday, after he was convicted of helping loot billions of dollars from Malaysia's 1MDB sovereign wealth fund.”   A message from the Electronic Payments Coalition: CONGRESS: OPPOSE HARMFUL CREDIT CARD ROUTING MANDATES: Despite vigorous lobbying attempts from corporate convenience store chains and their allies, credit card routing mandates are deeply unpopular—among both Democrats and Republicans. Credit card routing mandates hurt small businesses by increasing costs, weakening payment security, harming small financial institutions, reducing access to credit for those who need it the most, and ending popular credit card rewards programs. THE CHOICE IS CLEAR: CONGRESS MUST OPPOSE CREDIT CARD ROUTING MANDATES Learn more.     Follow us on Twitter Mark McQuillian @mcqdc Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

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