Warren and Sanders want new rules for banks and crypto

Assess the risk

A group of progressive lawmakers led by Sen. Elizabeth Warren is asking the Office of the Comptroller of the Currency to withdraw legal guidance that allows chartered banks to make some forays into crypto.

The request — detailed in a Wednesday letter — highlights an ongoing debate in crypto. Some banking industry groups say the regulated institutions could bring stability to the volatile sector. But lawmakers fear that without strict safeguards, crypto could introduce systemic risk to the broader banking system.

The guidance goes back to the final months of the Trump administration. Signed in late 2020 and early 2021, it gives nationally chartered banks approval to offer crypto depository services, hold cash reserves backing stablecoins and use blockchain technology to verify bank-to-bank payments.

• “In light of the recent turmoil in the crypto market … we are concerned that the OCC’s actions on crypto may have exposed the banking system to unnecessary risk,” said the letter, also signed by Sens. Bernie Sanders, Sheldon Whitehouse and Dick Durbin.
• The guidance should be replaced by a process “that adequately protects consumers and the safety and soundness of the banking system,” according to the letter.
• The OCC’s current head, Michael Hsu, is a self-described crypto-skeptic and promised to review the crypto-related guidance when he took the helm of the OCC in May 2021.
• The agency said in November that it would keep the provisions in place, with the added caveat that banks must apply to the OCC for a non-objection before engaging in crypto activity.

Banking industry groups say lawmakers are focusing their energy in the wrong place. Before the senators’ letter was published Wednesday, the American Bankers Association made a separate argument to the Treasury Department that well-regulated banks are kept out of the room, while other companies operate with little oversight.

• “The combination of these two approaches – inaction on the one hand to bring into the regulatory perimeter non-bank crypto companies, and limitation on the other of banks’ ability to engage responsibly in the digital asset market – creates an environment that makes almost impossible for responsible financial innovation to take place in this space,” said Brooke Ybarra, senior VP of innovation and strategy at the American Bankers Association.
• The senators’ letter cited the bankruptcies of the firms Celsius and Voyager, which ran crypto-lending businesses that operated outside the OCC’s purview.
• “If we really want to protect consumers, we need to pave a workable path forward for regulated institutions to provide crypto services, which was the very intent of the OCC’s guidance,” said Georgia Quinn, general counsel for Anchorage Digital, an OCC-chartered crypto custodian .

Warren has certainly not opposed the idea of ​​stricter regulation for the rest of the crypto industry. But in the meantime, the letter says, lawmakers must “mitigate crypto risks to the financial system and consumers.”

• Consumer-focused groups share the concern.
• “We don’t really know much about how exposed banks are to crypto risk or how regulators are weighing in,” said Mark Hays, senior fintech policy analyst at Americans for Financial Reform.
• “Given the recent crash, we should, and it would be better if regulators started from first principles and applied the full package of banking regulations from the outset rather than taking the ‘maybe, maybe not’ approach now in use,” Hays added to.

Lawmakers want regulators to put their heads together for a better plan. The senators’ letter urges the OCC to reopen proceedings with the Federal Deposit Insurance Corp. and the Federal Reserve to clarify how the banks they oversee can engage with crypto.

The OCC declined to comment directly on the letter, instead sharing earlier comments by Hsu that described the agency’s “cautious and prudent” approach to crypto. Hsu defended the agency’s approach to Bloomberg last week, which first reported that Warren circulated the banking committee letter. “I think we’re doing a pretty good job,” Hsu told the outlet. “Look at Exhibit A: a whole bunch of things have 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.”

A version of this story appeared on Protocol.

– Ryan Deffenbaugh (e-mail | twitter)

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