Lawmakers want the OCC to take away banks’ crypto capabilities

The news: Senators ask Office of the Comptroller of the Currency (OCC) to reverse guidance given to banks under the Trump administration on their crypto capabilities, per Yahoo! Finance.

What’s up? Led by Sen. Elizabeth Warren, lawmakers sent a letter to the OCC asking it to rescind Trump-era guidance to banks on permitted cryptocurrency activities. Under this guidance, federally chartered banks may engage in limited crypto practiceincluding:

• Offers services for the storage of crypto-assets.
• Holds cash reserves that support stablecoins.
• Uses blockchain technology and stablecoins to verify bank-to-bank payments.

The letter asked the OCC to consult with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve to refine how the agencies monitor banks’ cryptocurrency trading. They suggested that banks and traditional financial markets should remain insulated from the turmoil in the crypto market. Lawmakers also wanted to know how many OCC-regulated banks are currently engaged in crypto activities.

OCC Response: The OCC responded by repeating comments Acting Comptroller of the Currency Michael Hsu made last week when he heard the letter was circulating.

• Hsu told Bloomberg: “I think we’re doing a pretty good job. See Exhibit A: A whole bunch of things just happened, and the banking system is in pretty good shape, knock on wood. I think part of that is the actions we’ve taken.”

Last November, the OCC said it would not revoke the guidance, but mandated that banks receive OCC approval before engaging in crypto activities.

How did we get here? Yesterday we reported on the banks’ plea to the Biden administration to have a greater role in developing crypto regulation.

• Banks argue that the heavily regulated sector is the safest place for crypto and digital asset innovation.
• They highlighted the risks consumers face when engaging in crypto activities with unregulated entities, pointing out that the strict regulatory environment they operate in puts them at a disadvantage when it comes to opportunities in digital asset markets.

Supporters of the banks agree that operating in a regulated environment will make the crypto market less prone to fraud and money laundering, and minimize threats to national security.

Opponents fear that allowing banks to participate in crypto markets will open them up to greater fraud risk and potentially compromise traditional financial markets.