News: Warren crypto plan draws Manchin, big banks

Friday, July 28, 2023

Warren crypto plan draws Manchin, big banks

Jul 28, 2023

Presented by Structured Finance Association

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.

Sen. Elizabeth Warren’s crypto crackdown coalition just keeps growing.

MM is first to report that the Massachusetts Democrat has recruited Sen. Joe Manchin (D-W.Va.) and Sen. Lindsey Graham (R-S.C.) on a bill that would impose stricter anti-money laundering rules on digital asset trading.

In what may be an even bigger stunner, the Bank Policy Institute — which represents the big banks that Warren hounds on the regular — is backing the plan. The AARP supports it, too.

You could call it an anti-crypto love fest.

Warren first introduced the proposal last year with Sen. Roger Marshall (R-Kan.). That was an early sign that the tide was turning on the crypto industry, after a disastrous boom and bust.

Crypto advocates hated the bill and tried to brush it off as a contained threat. But Warren’s latest move shows that crypto distrust is shaping up to be one of the Senate’s great unifiers – whether you’re a Massachusetts liberal, the most centrist of the centrists or one of former President Donald Trump’s closest allies.

Warren’s rallying cry: Crypto has become a go-to payment method for rogue nations, drug lords, ransomware gangs and other fraudsters. Her bill would, among other things, extend Bank Secrecy Act and know-your-customer requirements to digital asset wallet providers, miners and other participants in crypto networks.

“This legislation is a matter of national security,” Marshall said.

Warren is already making headway in turning her plan into law. A piece is now riding on the annual defense policy bill the Senate passed Thursday night.

In contrast, House Republicans this week struggled to attract Democrats to support proposals that would set up a more accommodating regulatory regime for crypto. (More on that below.)

“I don't see how a bill like that makes it through,” Warren told our Eleanor Mueller this week.

Happy Friday — Whew, what a month this week has been. What’s next? Send tips: zwarmbrodt@politico.com.

A message from Structured Finance Association:

Did you know? Securitization serves all kinds of markets, even those traded on iTunes! Music royalties from artists like Miles Davis, Otis Redding, James Taylor, Phil Collins, R.E.M, Stevie Nicks, Isaac Hayes, Cyndi Lauper, and Pink Floyd are secured by bonds issued by members of the Structured Finance Association. Learn more at www.structuredfinance.org.

Driving the day

The Financial Stability Oversight Council talks climate risk and the LIBOR transition in a public session at 11:10 a.m.

On bank capital, a Fed divided — The Federal Reserve and its fellow bank regulators on Thursday proposed hiking big bank capital requirements by as much as 19 percent. But the Fed’s board isn’t totally sold on the plan.

As Victoria Guida reports, Fed Governors Michelle Bowman and Christopher Waller, Trump appointees, voted no on the proposal. Fed Chair Jerome Powell, who voted in favor and supported earlier efforts to strengthen banking rules, signaled he also has reservations.

“U.S. and global regulators raised large bank capital requirements significantly in the wake of the global financial crisis,” Powell said in a statement. “While there could be benefits of still higher capital, as always we must also consider the potential costs.”

It indicates that Fed Vice Chair for Supervision Michael Barr, who is driving the effort, faces a big challenge amid a looming barrage of industry pushback and congressional scrutiny.

One important dynamic to watch is related to mortgages. The capital proposal breaks from international standards by imposing tougher surcharges on residential mortgages, and that’s already stirring concerns in the housing industry.

Schumer plans Fed votes — Senate Majority Leader Chuck Schumer late Thursday set up Fed nomination votes on Philip Jefferson, Lisa Cook and Adriana Kugler for when Congress returns in September.

Wells Fargo faces Texas gun investigation — Bloomberg reports that the Texas Attorney General’s office is probing Wells Fargo’s policies around the firearm industry, in a potential threat to its bond underwriting in the Lone Star State.

The chief of the AG’s public finance division sent a letter to lawyers who work on Texas bond deals saying that officials want to know whether Wells Fargo has a policy that “discriminates against a firearm entity or firearm trade association.”

Texas passed a law in 2021 that restricts government contracts with companies deemed hostile to the gun industry.

YOUR TICKET INSIDE THE GOLDEN STATE POLITICAL ARENA: California Playbook delivers the latest intel, buzzy scoops and exclusive coverage from Sacramento and Los Angeles to Silicon Valley and across the state. Don't miss out on the daily must-read for political aficionados and professionals with an outsized interest in California politics, policy and power. Subscribe today.

Economy

U.S. growth picked up — Katy O’Donnell reports that U.S. economic growth accelerated in the second quarter, beating analysts’ expectations and giving a boost to “Bidenomics.”

ECB raises rates — The European Central Bank on Thursday hiked interest rates back to a record high, but signaled it might relent soon, according to the FT.

ECB President Christine Lagarde said officials had an open mind for their September and subsequent meetings: “There is a possibility of a hike, there is a possibility of a pause.”

A message from Structured Finance Association:

Crypto

Stablecoin chaos — House Financial Services late Thursday approved a new federal-state regulatory regime for stablecoins, following a partisan meltdown that lawmakers pinned on the White House. Only five Democrats backed the GOP-led bill in a 34-16 vote.

Chair Patrick McHenry and ranking member Maxine Waters spent more than a year trying to hash out a deal to regulate the tokens, which are backed by assets like the U.S. dollar. Regulators see potential risks to the financial system if they take off.

But whatever progress McHenry and Waters made evaporated on Thursday, and he pushed ahead with a vote over her objections.

As Eleanor reports, Waters and other committee Democrats were uneasy with limits the bill would impose on the Federal Reserve when it comes to overseeing state-chartered stablecoins. Biden administration officials were also unhappy with how regulators would share authority. Republicans and Democrats pointed to concerns raised by the White House, including NEC Director Lael Brainard.

In a separate voice vote Thursday, House Agriculture approved a bill that would give the CFTC new authorities to police cryptocurrency. It’s part of a broader House plan that would also spell out the SEC’s digital asset powers.

Crypto accountants, beware — Declan Harty reports that the SEC has a new warning for accountants dabbling in the cryptocurrency industry.

SEC Chief Accountant Paul Munter said in a statement that companies in the space are making misleading statements about their so-called “audits.” He said firms working with them shouldn’t be afraid of “making a noisy withdrawal” from those relationships.

HITTING YOUR INBOX AUGUST 14—CALIFORNIA CLIMATE: Climate change isn’t just about the weather. It's also about how we do business and create new policies, especially in California. So we have something cool for you: A brand-new California Climate newsletter. It's not just climate or science chat, it's your daily cheat sheet to understanding how the legislative landscape around climate change is shaking up industries across the Golden State. Cut through the jargon and get the latest developments in California as lawmakers and industry leaders adapt to the changing climate. Subscribe now to California Climate to keep up with the changes.

Climate

The thrilling conclusion of ESG month — House Financial Services Republicans in partisan votes late Thursday approved bills designed to curtail ESG-focused investing. The votes brought to a close their month of hearings on the topic. But stay tuned: McHenry told Eleanor it was just "an opening act.

Groups press FSOC on climate — A coalition of consumer and environmental advocates is urging the Financial Stability Oversight Council to ratchet up oversight of large insurers, asset managers and private equity firms, in light of potential climate risks tied to the companies.

The groups sent the letter as the FSOC plans to discuss climate issues at a public meeting today. The council’s members include the Treasury secretary and other top financial regulators.

A message from Structured Finance Association:

Safety in numbers is true in finance like everywhere else. When loans are pooled together into a bond, the bond’s value stays stable even if a few of the bundled loans aren’t repaid on time. The risk of default is reduced. Structured finance is all about packaging loans together to reduce overall risk and in that way lower the cost of financing for borrowers. This process, called securitization, allows banks to sell loans and to make new loans at prevailing market rates. The result: A dynamic – and safer – financial services system for everyone. Thanks to years of experience and market reforms, the benefits are widespread for lenders, savers, and consumers. The Structured Finance Association represents every participant in the securitization market. Find out more at www.structuredfinance.org.