Arezou

The chair of the House Financial Services Committee, Rep. French Hill (R-AR), the Digital Asset Subcommittee’s chair, Rep. Bryan Steil (R-WI), eight other Republicans and three Democrats have introduced House legislation to create a long-awaited federal framework for dollar-denominated payment stablecoins.  The bill differs substantively from Senate language, especially with regard to the scope of federal authority and the extent to which stablecoins might come to supplant bank deposits.  However, the bills are similar in many respects and are likely to become still closer as House and Senate consideration continues ahead of final agreement and enactment into law later this spring….

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As noted, the President yesterday issued two executive orders demanding significant change to the federal payment system.  In this report, we assess the financial-market and banking-system implications of the orders, one of which emphatically states that nothing done to enhance digitalization may be construed to authorize a central bank digital currency.  The purpose of the orders is to reduce fraud, with the Administration saying that GAO has calculated annual federal losses due to fraud to be as much as $521 billion, some of which is doubtless independent of payment-system operations……

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In concert with other efforts to prevent debanking, two Republican senators have introduced legislation to bar insured depository institutions from certain government contracts if the IDI or its affiliate refuses to do business with lawful enterprises they dislike on what the bill describes as social-policy grounds.  The bill is very brief and thus does not provide an administrative framework for implementation in areas such as determining which entities banks inappropriately dislike and which contracts are to be barred.

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In this report, we build on our earlier alert regarding the President’s executive order (EO) bringing federal financial regulation and supervision directly under the Executive Branch.  Although some commenters have suggested this will have little material impact given pending Trump nominees to key posts, we expect it will at the least slow and in many cases alter what would be largely technical decisions by moving them into the often-viral political environment in ways far beyond changes now effected through the Congressional Review Act.  Further, areas where the banking industry seeks new rules – e.g., a rewrite of current capital standards taking the best of the 2023 proposal, cryptoasset certainty, debanking, NBFI constraints from the SEC/CFTC – could be complicated by White House or OMB demands based on little knowledge of financial markets and bank operations, along with political pressures rarely evident in the insular realm of banking-agency rulemakings….

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As promised, this post-election forecast looks at bank-merger policy, providing a cautionary note in response to the go-go, game-on forecasts for new mergers often touted by investment bankers.  While community- and midsize-bank mergers will move with more certainty, more alacrity is unlikely unless the OCC and FRB join the FDIC with at least an initial deadline.  The same banking-agency staff who will work on bank mergers next year are also the same banking-agency staff working on them now.  However, we also expect new OCC and FDIC leadership to retract recent agency merger policies, saying at the same time that new ones are forthcoming.  Why is there a need for new ones?  As detailed in this report, aspects of the new policies addressed….

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