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QUICK FIX
Republicans were already getting serious about “debanking.” Now it’s an official priority of the Trump White House.
Trump’s executive order on Thursday directing a new, whole-of-government reassessment of U.S. crypto policy (sound familiar?) pledged to advance the industry by “protecting and promoting fair and open access to banking services for all law-abiding individual citizens and private-sector entities alike.” The language’s inclusion is a victory for crypto boosters and billionaire Silicon Valley venture capitalists like Marc Andreessen — a self-described “unpaid intern” for Elon Musk’s Department of Government Efficiency — who bemoaned Biden administration efforts to wall off digital assets from traditional finance.
Foisting crypto firms onto the books of staid financial institutions won’t be easy. Banks, especially big banks, are typically more risk averse than other segments of finance — particularly after the Dodd-Frank reforms that followed the global financial crisis. Crypto markets are notoriously volatile, and their frequent implosions have quickly erased fortunes and obliterated the credibility of high-flying startup founders. For banks, those collapses can lead to losses, enforcement actions, litigation and — lest we forget — failures.
That is a big reason why federal banking regulators under President Joe Biden discouraged financial institutions from taking on crypto clients as the digital asset industry weathered a series of massive scandals in 2022. The damage to the overall financial system was largely confined to the handful of banks that counted digital asset firms as depositors.
“The crypto winter, the crash from 2022, did not impact the banking system materially,” Acting Comptroller of the Currency Michael Hsu told POLITICO earlier this year. “That is an accomplishment. People should recognize $2 trillion of value of crypto was lost. Dozens of platforms failed. FTX, one of the largest exchanges, failed in [a] disorderly manner, and the banking system just motored right along. And that’s good. People who had nothing to do with crypto didn’t have to worry about it.”
Furthermore, in the absence of a dedicated U.S. legal regime for digital assets and crypto marketplaces, many banks are going to be reluctant to service an industry that’s been dogged by reputational risks relating to illicit finance and money laundering. Until there are clearer rules of the road, “it's just not profitable enough for [big banks] to go out and do that at that level of reputation risk,” said Steven Kelly, the associate director of research at the Yale School of Management’s Program on Financial Stability.
“If you want the Big Banks to basically swallow the crypto stability risk — which they can do easily, but haven't — you need to solve the [anti-money laundering and know-your-customer] risk, the litigation risk,” he added.
Trump’s executive order directed a commission led by venture capitalist David Sacks to develop a federal framework for trading digital assets, but we won’t see its recommendations for months, per Declan Harty. In the meantime, lawmakers from both parties are sharpening their knives to take banks and their regulators to task for failing to adequately service a multi-trillion dollar industry that’s operated in a legal gray area.
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Driving the day
The University of Michigan’s consumer sentiment survey for January is out at 10 a.m. …
More debanking — Yesterday’s Morning Money on how big banks are thinking about debanking was fortunately timed. In a remote speech and Q&A to the World Economic Forum in Davos on Thursday, Trump blasted Bank of America CEO Brian Moynihan at the World Economic Forum in Davos and JPMorgan Chase CEO Jamie Dimon for failing to serve conservative customers, per Victoria Guida and Michael Stratford. “I don’t know if the regulators mandated that because of [former President Joe] Biden or what, but you and Jamie and everybody, I hope you’re going to open your banks to conservatives because what you’re doing is wrong,” he said, responding to a question from Moynihan.
— In an interview with Eleanor Mueller, Senate Banking’s first digital assets subcommittee Chair Cynthia Lummis (R-Wyo.) said she’ll “be working with hearings on Choke Point 2.0; the debanking of so many businesses.” Her other priorities include passing tax-related crypto provisions as part of a reconciliation package; prioritizing stablecoin legislation; advancing a broader regulatory overhaul; and exploring the creation of a bitcoin reserve.
— Lummis’ counterpart, Sen. Ruben Gallego (D-Ariz.), wants to invite FDIC officials, stablecoin companies and “up and coming coins” to testify at a hearing on debanking, the Arizona Democrat told Eleanor.
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Banks press for Trump action on CFPB: Financial industry groups that have sparred with CFPB Director Rohit Chopra over the last few years want to see the White House move more quickly to oust him from the agency. Chopra told POLITICO on Wednesday that he’s ready to hand over the reins of the agency if Trump picks a successor but that he plans to keep moving forward on agency work and investigations in the meantime, Stratford reports.
“We're hopeful that an Executive Order to reset the CFPB and fire Director Chopra will be on President Trump's desk to sign soon,” Weston Loyd, a spokesperson for the Consumer Bankers Association, said in a statement. “The longer Director Chopra stays, the harder it will be for this pro-growth administration to undo the politically-driven, government-price setting agenda that former President Biden's appointee has engaged in over the last several years at the Bureau.”
Elon’s agenda — Musk’s social media broadsides against OpenAI Sam Altman, a key partner in Trump’s $500 billion artificial intelligence mega-deal, are enraging White House staffers who think the world’s wealthiest man is out over his skis, Dasha Burns and Holly Otterbein report.
No, my job requires it. — World Trade Organization Director-General Ngozi Okonjo-Iweala had a message for those worried about Trump’s protectionist agenda, Bloomberg’s Brendan Murray reports: “Please let’s not hyperventilate,” she said. “Could we chill?”
A message from the American Bankers Association:
On the Hill
Turner advances — The Senate Banking Committee advanced Scott Turner’s nomination to lead the Department of Housing and Urban Development on a party-line vote on Thursday, Katy O’Donnell reports. Democrats had sought to delay the vote until results of Turner’s FBI background check were available.
No sale — House Minority Leader Hakeem Jefferies told reporters that a proposed deal that would link California wildfire aid to raising the debt limit is a “nonstarter,” per Nicholas Wu.
Senate Banking Dems select subcommittee chairs — The Senate Banking Committee finalized its subcommittee leadership during a hearing Thursday, revealing Democrats’ selections for the panel’s subcommittee leadership.
Sen. Raphael Warnock of Georgia will serve as ranking member of the economic policy subpanel; Sen. Catherine Cortez Masto of Nevada will be the top Democrat on the financial institutions and consumer protection subcommittee; Sen. Tina Smith of Minnesota will return as ranking member of the Housing, Transportation and Community Development subpanel; freshman Sen. Andy Kim of New Jersey will be ranking member of the national security subgroup; Sen. Mark Warner of Virginia will serve as ranking member of the securities, insurance and investment subcommittee; and Sen. Ruben Gallego of Arizona will be ranking member of a new digital assets subcommittee.
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CRYPTO CORNER
Sayanora, CBDCs? — Trump’s crypto executive order also prohibits the implementation of central bank digital currencies, which the president labeled a threat to the financial system, privacy and U.S. sovereignty. The move — though unsurprising — was alarming to think tanks and industry groups who’ve been studying how a digital greenback could work, particularly as other countries move ahead with their own digital currencies.
“While the United States should avoid rushing into developing a digital dollar, it should continue to assess its feasibility,” Daniel Castro, the vice president of the Information Technology and Innovation Foundation, said in a statement. “To remain competitive globally, the U.S. should be prepared to offer a central bank digital currency that rivals those of its international competitors if necessary.”
Sayonara, SAB 121 — The Securities and Exchange Commission has rescinded accounting guidance issued under former Chair Gary Gensler that the crypto industry had slammed for discouraging banks from holding digital assets in custody.
Warren targets Trump over his memecoin — Sen. Elizabeth Warren, the top Democrat on the Senate Banking Committee, became the latest Democrat to take aim at Trump over his move to launch a crypto meme coin. She wrote in a letter with Rep. Jake Auchincloss (D-Mass.) — a crypto proponent — that the coin could allow Trump “to earn extraordinary profits off his Presidency” and “could hurt the very people President Trump says he is working to help.”
A message from the American Bankers Association:
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