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| | A new fight over digital assets is beginning to take shape on Capitol Hill. The genesis is Wall Street's embrace of the technology that undergirds crypto. MM has chronicled how mainstream financial institutions like BlackRock are increasingly dabbling in tokenization, which allows real-world assets like securities and real estate to be recorded on blockchain ledgers. Proponents say the movement could help streamline the financial system. The push is beginning to get the attention of Congress, with crypto advocates touting the benefits of tokenizing assets. It’s an issue to keep an eye on going into next year as more players on Wall Street start to use blockchain. House Republicans are expected to continue pressing to pass industry-friendly crypto legislation, and paving the way for tokenization could become part of the next phase of the effort. “I believe that tokenization offers tremendous cost-savings, better compliance, less fraud, more certainty, compressed time,” Rep. French Hill (R-Ark.), who chairs the House Financial Services digital assets subcommittee, told MM. “It’s an important use of blockchain, both in the financial services industry and beyond.” Hill, who’s running to lead the full Financial Services panel next year, said he hopes to focus more on tokenization issues moving forward. Some pro-crypto lawmakers have introduced legislation to set the stage for further adoption. A bill from Reps. William Timmons (R-S.C.) and Ritchie Torres (D-N.Y.) would require banking regulators to study asset tokenization. The crypto industry is supporting the move. A new Coinbase whitepaper shared first with MM touts the benefits of tokenization and urges lawmakers to ensure that assets aren’t regulated differently if put on the blockchain. “Treating on- and off-chain assets differently would threaten many of tokenization’s important benefits while also creating opportunities for regulatory arbitrage, particularly in cases where tax treatment differs or tokenized assets have more restrictive underlying frameworks,” said Coinbase, the largest U.S. crypto exchange. Securitize CEO Carlos Domingo, whose firm has partnered with finance giants including BlackRock to launch tokenized funds, is urging Congress or the SEC to adopt regulations that would help pave the way for tokenization. He points to a European Union pilot program as a model for the U.S. to follow. “Conceptually, we would like to see the same thing,” he said. Proponents hope tokenization will be considered as distinct from crypto regulation, which has become more fraught politically in recent months due to a mountain of industry campaign cash and a split among Democrats over whether to help legitimize digital assets. “I see tokenization as an issue separate from crypto,” Torres, a vocal digital assets proponent, told MM. “It’s more about blockchain than it is about crypto.” But the tokenization effort is being met with familiar concerns from crypto skeptics on the left, who are warning of money laundering and consumer data privacy risks. “If it’s just a new accounting software package, we’ve had a few of those,” said Rep. Brad Sherman (D-Calif.). “If the goal here is to create a system that breaks down the know-your-customer and anti-money laundering laws, then that’s something we need to prevent.” IT’S THURSDAY — Be sure to reach out to Jasper for anything tokenization-related at jgoodman@politico.com. As for me, I’m focusing on what former President Donald Trump will tell around 100 of America’s top CEOs at today’s Business Roundtable fireside hosted by his economic policy ally Larry Kudlow. Are you going to be there? I’d love to hear from you. Send tips and suggestions to ssutton@politico.com or on Signal at 925.216.7576
| | A message from U.S. Bank: At U.S. Bank, we believe everyone deserves financial freedom. That’s why we provided 1.5 million people with financial education in 2023. Through partnerships like our program with the University of St. Thomas, we’re empowering young people with tools to lay the foundation for long-term financial wellness. Because U.S. Bank is small enough to care, and big enough to make a difference. Learn more. | | | | | The producer price index for May will be released at 8:30 a.m. … SEC Chair Gary Gensler and CFTC Chair Rostin Behnam will testify at a Senate Appropriations Committee hearing at 10 a.m. … CFPB Director Rohit Chopra will testify at House Financial Services at 10 a.m. … Treasury Secretary Janet Yellen will address The New York Economic Club in a fireside chat moderated by New York Fed President John Williams at noon … The SEC holds a closed meeting at 2 p.m. Biden’s G7 agenda — Adam Cancryn reports that Biden will press allies on a plan to convert seized Russian assets to generate new funds for Ukraine. But with European Union officials blanching at the proposal, Biden aides are tempering expectations. "The president will continue to reiterate our desire to move in lockstep with our allies and partners on using those frozen assets," White House national security spokesperson John Kirby said before the G7 summit in Italy, which begins today. "The only way this works is if we do have participation and support from other nations." Powell hears your pain — Markets thought that the Consumer Price Index for May made a strong case for the Federal Reserve to lower interest rates as soon as September. Still, top monetary policymakers are now only penciling in one rate cut in 2024. That’s going to continue pressuring the pocketbooks of lower-income consumers who’ve seen their borrowing costs rocket even with price growth still elevated, Victoria Guida and I reported yesterday. Fed Chair Jerome Powell directly addressed that dynamic during his press conference after announcing that rates would remain unchanged for at least another month as policymakers look for more evidence of inflation slowing. “It's going to be painful for people, but the ultimate pain would be a period of long, a long period of high inflation,” he said. It is “lower-income people, who are at the margins of the economy [that] have the worst experience, who experience the most pain from inflation.” — The stock market climbed after the CPI report was released but fell off the day’s record highs after the Fed released its projection for just one rate cut this year, Reuters reports. Nellie Liang — Victoria also sat down with Treasury Under Secretary Nellie Liang for an interview that ranged from Basel III to artificial intelligence risks. “New AI can generate new content, and they’ve illustrated discrepancies between small financial institutions and big financial institutions. The small ones don’t have the data or the capacity to process that data that the big ones do,” she said. “How do you ensure though, that you don’t have weak links in the system because smaller institutions can’t do this?”
| | | | 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. | | | | | | | | Fiscal Cliffs — The Committee for a Responsible Federal Budget tossed some arrows into the White House’s quiver for the fast-spreading political fight over the extension of Trump’s 2017 tax cuts, many of which are set to expire next year. A new estimate compiled by the nonpartisan organization — shared with Morning Money — determined that extending the the individual and estate tax provisions of Trump’s Tax Cuts and Jobs Act expiring at the end of 2025 would cost $3.9 trillion — or $4.5 trillion with interest — through the 2035 fiscal year. Previous estimates pegged the cost at $3.4 trillion. “I think these new estimates are going to give policymakers pause,” Senior Policy Director Marc Goldwein told MM. “Extending tax cuts at a $4 trillion or $5 trillion cost is a lot scarier than extending them at a $2 trillion or $3 trillion cost, especially in a high interest rate environment.” Extending various other non-TCJA tax policies, including those offered through the Affordable Care Act or Inflation Reduction Act — which Majority Leader Chuck Schumer says faces a “very real” repeal threat from Republicans — would cost another $470 billion. — Bloomberg’s Christopher Condon: “The US government added $347 billion to the deficit in May, up 5% over the same month last year, as elevated borrowing costs continued to drive the growth in spending.”
| | | | A message from U.S. Bank:   | | | | | Smokestack Lightning — Lawmakers clashed along partisan lines in a House Judiciary Committee meeting covering how investors and advocacy groups have fought to curb emissions at big companies, Jordan Wolman reports. Crypto intelligence — Sen. Mark Warner (D-Va.) said he’s open to compromising on a crypto sanctions bill that’s poised for inclusion in must-pass legislation, Eleanor Mueller reports. Coinbase hits the Hill – Coinbase CEO Brian Armstrong, along with Chief Policy Officer Faryar Shirzad and Head of U.S. Policy Kara Calvert, met with senators on both sides of the aisle Wednesday as the industry pushes for the Senate to take up a regulatory overhaul like the House just passed, Eleanor reports. Armstrong sat down with Sen. Jon Tester, said a Senate aide granted anonymity to discuss private conversations – a softening crypto skeptic whose race is in the crosshairs of pro-crypto super PACs. Armstrong also participated in a discussion with Senate Banking Republicans, said another Senate aide. Senate Agriculture Chair Debbie Stabenow, who is working on crypto legislation with ranking member John Boozman, told reporters that she also met with Armstrong. An early clash over the latest CFPB funding fight — Sen. John Kennedy (R-La.) sparred with CFPB Director Rohit Chopra over the legality of the consumer watchdog’s funding source. As Katy O’Donnell reports, “the argument is that under the 2010 Dodd-Frank law that established the bureau, the CFPB must be funded by Fed ‘earnings,’ and that the Fed — which stopped transfers to Treasury in September 2022 — technically doesn't have earnings.” Kennedy insisted that the law means the CFPB is “operating illegally.” Chopra said the agency believes “wholeheartedly everyone is complying with the statute.”
| | | | SUBSCRIBE TO GLOBAL PLAYBOOK: Don’t miss out on POLITICO’s Global Playbook, our newsletter taking you inside pivotal discussions at the most influential gatherings in the world. Suzanne Lynch delivers the world's elite and influential moments directly to you. Stay in the global loop. SUBSCRIBE NOW. | | | | | | | | Your Daily Musk — Tesla will announce the results of an investor vote that could yield a $45 billion payday for CEO and Founder Elon Musk, which could make him the richest man in the world, Jack Ewing and Peter Eavis of The New York Times report. On Wednesday, The Wall Street Journal’s Joe Palazzolo and Khadeeja Safdar published a lengthy expose detailing how the high-flying billionaire pursued “boundary-blurring relationships” with women at his other company, SpaceX. BlackRock’s private debt play — BlackRock is looking to tap insurance company assets to raise more funds for private debt, Bloomberg’s Loukia Gyftopoulou and Kat Hidalgo report.
| | New Russia sanctions — Ahead of President Joe Biden’s trip to the G7 in Italy, Treasury on Wednesday widened sanction policies designed to cut off key Russian actors from the financial system, Michael Stratford reports. Foreign banks now risk U.S. sanctions if they work with more than 4,500 sanctioned entities. The policy also applies to any foreign bank that does business with any sanctioned Russian entity. — The Commerce Department also widened export controls designed to choke Russia’s economy, Ari Hawkins reports.
| | New reinsurance framework in Ukraine — Aon announced a new $350 million insurance program designed to stimulate investment in Ukraine’s economy. The program, which was developed alongside the U.S. International Development Finance Corp. and the Ukraine Ministry for Development of Economy and Trade, includes a $50 million reinsurance business to support carriers offering war risk policies to businesses operating in Ukraine. An additional $300M of capacity is being made available to cover war risks for businesses in Ukraine's health care and agriculture sectors. U.S. and Ukrainian officials have been working with corporate leaders to drum up investment in the war torn country, including enlisting the support of Bank of America and Nasdaq. “Insurance is the lifeblood of a deal,” Penny Pritzker, a former Commerce secretary who Biden named the U.S. representative for Ukraine’s economic recovery effort, told MM. “Without it, you can't’ really go into business.”
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