| | | | |  | | By Declan Harty and 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.
| | The House today is set to rebuke the SEC for its cryptocurrency crackdown and pass legislation that would limit the agency’s ability to police the industry. But, in a twist, the SEC may be about to hand the digital asset world a big victory. Before we get to that, MM has some related, must-read news that’s breaking this morning. In a rare instance of a federal regulator calling out Congress, SEC Chair Gary Gensler says the sweeping crypto legislation that the House will likely pass this afternoon "would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk." The bill, which is led by Republicans and has support from some Democrats, would restrict the SEC’s authority over crypto and expand the powers of its sister agency, the CFTC. "The crypto industry's record of failures, frauds and bankruptcies is not because we do not have rules or because the rules are unclear,” Gensler says in a nearly four-page warning about the bill. “It's because many players in the crypto industry don't play by the rules." Gensler’s unwavering concern about crypto risks and the House’s pending slapdown are why MM wants to point your attention to a potentially surprising digital asset decision coming from the agency soon. The SEC is weighing whether to approve exchange-traded investment funds that track ether, the world’s most valuable cryptocurrency behind bitcoin. The industry had been betting against such a move ahead of this week with a key deadline looming, but the SEC is unexpectedly sending signals that it might play ball. If the agency’s commissioners approve the ether ETF applications, it would mark another major expansion of investor access to crypto following the decision earlier this year to permit bitcoin ETFs. The bitcoin move has been a gift for the crypto world and also traditional financial giants, which are trying to embrace the digital asset boom. BlackRock’s bitcoin ETF has $19.2 billion in assets under management after launching in January. Approval of ether ETFs would go against the overarching narrative around the SEC. Under Gensler, the agency has emerged as the crypto world’s top Washington foe because of its position that many digital assets pose risks to investors and should be regulated as securities. It's why the House is trying to rein in the SEC. “The agencies need to see that Congress is acting,” House Financial Services Chair Patrick McHenry said in an interview ahead of today's vote on the crypto bill he spearheaded. “They need to have a smarter view of this and a view inclined toward innovation. An Ethereum ETF would be smart, safe innovation in my view.” (You can check out the full crypto-focused Q&A with McHenry on POLITICO Pro, and keep reading below for more on today’s House crypto votes.) The crypto market had been bracing for disappointment from the SEC for weeks. One industry representative told MM that the agency had been “radio silent” before Monday, while an executive at another firm proposing an ether ETF said there seemed to be no chance of approval, until now. “[An approval] would just be out of touch with every other step that the commission has taken toward the crypto industry,” said Coy Garrison, a former counsel to Republican SEC Commissioner Hester Peirce and a partner at the law firm Steptoe. The mood shifted Monday when the SEC quietly opened up discussions with firms looking to offer the ether ETFs. The companies pushing for approval include VanEck, BlackRock and Fidelity. “Exchanges typically don’t tweak filings if they aren’t getting some suggestions from agency staff that the effort will be rewarded,” said Tyler Gellasch, a former SEC attorney who now leads the Healthy Markets Association, an investor advocacy group. “The process for these filings is starting to look eerily similar to the bitcoin [exchange-traded product] process.”
| | | | A message from the Council of Federal Home Loan Banks: Our nation’s economic health depends on a safe and secure financial system comprised of thousands of local lenders able to serve their customers successfully through all market conditions. Our nation needs the Federal Home Loan Banks. Day in and day out, for more than 90 years, we have been a dependable and crucial funding partner for financial institutions large and small, supporting community lenders who in turn support local businesses, households, and families. | | | Gensler himself hinted earlier this year that the crypto world shouldn’t get its hopes up. So why might the SEC usher in another crypto sea change? Gellasch and other SEC watchers speculate that the agency may have forced its own hand when approving the bitcoin funds, a decision that was provoked in part by a crypto firm’s lawsuit. “That choice made it challenging for the SEC to justify drawing a line in the sand now,” Gellasch said. The SEC may still block the products, and the approval process could be further drawn out. The agency would have to sign off on proposals from the exchanges to list the products and separately give the issuers the go-ahead. Some of Gensler’s biggest allies are spending the week fighting the crypto legislation on the House floor today. An unexpected SEC blessing of ethereum funds could provoke a backlash from some in the watchdog community. “Anything that is going to further expose investors to the crypto market without sufficient investor protections is highly problematic,” said Benjamin Schiffrin, a former SEC attorney now with the crypto-skeptical Better Markets. “The further crypto is entangled with the traditional financial system, the greater the risk that all the problems in the crypto marketplace are going to spill over.” While we’re on the subject: The Trump campaign now accepts contributions in crypto. The former president is courting crypto voters and bashing the Biden administration’s approach to the industry. “Today’s announcement reflects President Trump’s commitment to an agenda that values freedom over socialistic government control,” the Trump campaign said. It’s Wednesday — And we have major fin reg legislation on the House floor. Stay tuned to POLITICO and POLITICO Pro. Send tips to zwarmbrodt@politico.com. Keep up with Declan at dharty@politico.com and @declanharty.
| | | | THE GOLD STANDARD OF FINANCIAL SERVICES POLICY REPORTING & INTELLIGENCE: POLITICO has more than 500 journalists delivering unrivaled reporting and illuminating the policy and regulatory landscape for those who need to know what’s next. Throughout the election and the legislative and regulatory pushes that will follow, POLITICO Pro is indispensable to those who need to make informed decisions fast. The Pro platform dives deeper into critical and quickly evolving sectors and industries, like financial services, equipping policymakers and those who shape legislation and regulation with essential news and intelligence from the world’s best politics and policy journalists.
Our newsroom is deeper, more experienced, and better sourced than any other. Our financial services reporting team—including Zach Warmbrodt, Victoria Guida and Declan Harty—is embedded with the market-moving legislative committees and agencies in Washington and across states, delivering unparalleled coverage of financial policy and the financial services industry. We bring subscribers inside the conversations that determine policy outcomes and the future of industries, providing insight that cannot be found anywhere else. Get the premier news and policy intelligence service, SUBSCRIBE TO POLITICO PRO TODAY. | | | | | | | | | NAR releases existing home sales data for April at 10 a.m. … House Small Business holds a hearing on regulatory burdens at 10 a.m. … House Financial Services Chair Patrick McHenry speaks at the Investment Company Institute’s leadership summit at 10:10 a.m. … Goldman Sachs chief economist Jan Hatzius and Bank Policy Institute chief economist Bill Nelson discuss the Fed and financial stability at the American Enterprise Institute at 1 p.m. … The Fed releases FOMC meeting minutes at 2 p.m. No, thank you — At least one of the candidates to replace FDIC Chair Martin Gruenberg tells Victoria Guida that he’s not looking for the nomination. Graham Steele, a former aide to Senate Banking Chair Sherrod Brown who stepped down as assistant Treasury secretary earlier this year, said, “I am very happy living back in private life, and I am not interested in the position.” A White House official told Reuters that the agency needs a “fresh start.” First in MM: Scott aide heads downtown — John Partin, who serves on the staff of Senate Banking ranking member Tim Scott, is joining the Bank Policy Institute as vice president of government affairs. He starts June 3. The Fed’s next move — Per CNBC, Fed Governor Christopher Waller says he doesn’t think further rate hikes will be necessary but he needs to see “several more months of good inflation data” before easing borrowing costs. Bank execs wanted on the Hill — Michael Stratford reports that the chair of the Senate’s Permanent Subcommittee on Investigations, Richard Blumenthal, wants representatives of JPMorgan Chase, Bank of America and Wells Fargo to testify about fraud concerns with their payment service Zelle. Blumenthal held a hearing on the issue Tuesday. According to the subcommittee, Zelle customers from the three banks submitted claims with losses totaling more than $456 million in 2022. About three-quarters, or $341 million, wasn’t reimbursed by the lenders.
| | | | | | | A message from the Council of Federal Home Loan Banks:   | | | A huge day on the Hill – The House is primed to make history this afternoon when it passes a big revamp of how the U.S. regulates crypto — the first time Congress has taken such a step. The bill would put new restrictions on how the SEC regulates the space and give the CFTC authority to play a bigger role. Lawmakers late Tuesday agreed to consider a few amendments, which you can read about here on Pro. Eleanor Mueller reports that Democrats are split over whether to pass the Republican-led legislation. House Democratic leadership isn’t urging members to vote against it, despite an attempt by House Financial Services ranking member Maxine Waters to rally opposition. Eight Democrats, including Reps. Jim Himes, Josh Gottheimer and Ritchie Torres circulated a memo urging members to support the bill. “The promise of blockchains and digital assets is exciting, but the development of these networks is hamstrung by a lack of regulatory clarity that hurts responsible actors trying to innovate while rewarding bad actors who seek to defraud the public,” the supportive Democrats wrote. The bill isn’t expected to get any pickup in the Senate, but it will be on the shelf for a future Congress. Financial services legislation has a history of taking multiple sessions to gestate. "This is the whole menu of options," McHenry told reporters Tuesday. Democrats are facing pressure from allies outside Congress to oppose the bill. A coalition including the AFL-CIO, Center for American Progress and Americans for Financial Reform told lawmakers in a letter that the legislation as written “introduces a policy ‘cure’ that would be far worse than the disease.” As for the Biden administration? "It's been crickets," McHenry said.
| | The latest mortgage battle — Katy O’Donnell reports that Republican lawmakers are gearing up to fight a plan by Freddie Mac to start buying second mortgages. Former FHFA Director Mark Calabria, the top mortgage regulator under Trump, calls it a risky “election-year gimmick.”
| | | | JOIN 5/22 FOR A TALK ON THE FUTURE OF TAXATION: With Trump-era tax breaks set to expire in 2025, whoever wins control of Congress, and the White House will have the ability to revamp the tax code and with it reshape the landscape for business and social policy. Join POLITICO on May 22 for an exploration of what is at stake in the November elections with our panel dissecting the ways presidential candidates and congressional leaders are proposing to reshape our tax rates and incentives. REGISTER HERE. | | | | | | | | | AI collateral — The WSJ reports that Wall Street lenders are using high-demand computer chips used in AI development as assets to backstop costly loans to the industry. At least three deals have closed since last year, and more appear to be in the pipeline.
| | | | A message from the Council of Federal Home Loan Banks: Our nation’s economic health depends on a safe and secure financial system comprised of thousands of local lenders able to serve their customers successfully through all market conditions. Our nation needs the Federal Home Loan Banks. For more than 90 years, we have been a dependable and critical funding partner for financial institutions large and small, supporting community lenders who in turn support local businesses, households, and families.
The FHLBanks are also key supporters of affordable housing and community development initiatives. Since 1990, we have contributed more than $8 billion in affordable housing grants, and in 2024 alone, we expect to provide approximately $1 billion in support. We are one of the largest sources of private funding for affordable housing in the country. Working with thousands of members and housing partners, the FHLBanks play a crucial role in the economic health of our communities, delivering measurable impact and, most importantly, hope. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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