#Cryptoassets

28 05, 2024

Karen Petrou: Why Regulators Fail

2024-05-28T12:38:29-04:00May 28th, 2024|The Vault|

Last week, the House voted on a bipartisan basis to stick its collective fingers in the SEC’s eye over its cryptoasset jurisdiction.  And, in recent weeks, the Vice Chair of the Federal Reserve has been forced to concede that the end-game capital rules that are his handiwork as much as anyone’s will get a “broad, material” rewrite.  What do these two comeuppances have in common?  Each results from regulatory hubris so extraordinary that even erstwhile allies abandoned the cause.  For all MAGA fears about an omnipotent “administrative state,” these episodes show that those seeking sweeping change without plausible rationales are still subject to the will of the people even if the people’s will befuddles those in the government’s corner offices.

First to the SEC.  Chairman Gensler’s position on cryptoassets over the past three years is that many ways to use them are securities and anything that’s a security is his for the enforcing.  I’m not even going to venture a conclusion on who’s right or wrong when it comes to abstruse Supreme Court rulings on complex definitions.  What underpins the SEC’s downfall – temporary though it may be – is that any question as big as what’s a cryptoasset and who can do what with it should be answered by rules subject to public notice and comment, not episodic enforcement actions meant to teach everyone else a lesson.

Most people would learn the lesson if a coherent regulatory policy spelled it out.  When policy is set by whack-a-mole instead of …

6 03, 2023

Karen Petrou: Why Way-Woke Won’t Work in 2023

2023-03-06T16:31:48-05:00March 6th, 2023|The Vault|

The fact that both the House and Senate passed a Congressional Review Act resolution overturning the Department of Labor’s ESG standards makes it clear that striking an anti-woke blow is deemed good politics by red and purple politicians. The President’s certain veto also makes it clear that a blue man sees matters quite differently, as did 204 House Democrats and 46 of their Senate colleagues. This stalemate will continue for changes to federal law, but it won’t stop Republicans from taking a lot out on financial regulators and big banks that they can’t get into the law books. Thus, anyone deemed even a bit woke-ful will get an earful.

Even if all these excoriations are only rhetorical, they will prove meaningful because even federal regulators immune from the appropriations process are susceptible to political influence – as well they should be if they are not also to be unaccountable. That anti-wokeness is already making its mark is evident in many ways, most recently in the inter- agency crypto-liquidity risk statement at great pains to refute any Republican suggestion that tough new standards amount to a blanket ban on engaging in any form of legal cryptoasset activity. In essence, the new statement says, “banks can do crypto if it’s legal, but they almost surely shouldn’t do crypto because it’s way risky and we’re watching.”

To be sure, anything crypto isn’t always toxic. Another way the agencies will handle accusations that they are conducting a stealth-woke anti-crypto campaign is to make it …

28 02, 2023

FedFin on: Crypto-Related Funding Risk

2023-02-28T15:44:17-05:00February 28th, 2023|The Vault|

In the wake of revelations by Silvergate and other banks about significant deposit exposures to cryptoasset entities, federal banking agencies have issued a statement about the need to manage liquidity risk associated with cryptoassets.  The agencies are at pains to emphasize that nothing in this statement is new, thereby retaining flexibility to take action against banks with prior, problematic exposures.  Although nothing in the statement bars doing business with cryptoasset firms, it will discourage some banks from doing so even as it reminds others to avoid stresses recently seen at several banks….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

24 02, 2023

FedFin on: Custody Reform

2023-02-24T16:53:29-05:00February 24th, 2023|The Vault|

Making full use of powers granted in the 2010 Dodd-Frank Act, the SEC is proposing a wholesale rewrite of the rules dictating how investment advisers must place assets in custody and which institutions are considered qualified for this purpose. Although the proposal was sparked first by controversies surrounding custody for cryptoassets and then by significant investment losses, the NPR reaches most assets held in the direct or indirect possession of investment advisers or to which the adviser may gain possession, also redefining qualified custodians to exclude not only most crypto platforms, but also foreign firms and other entities the Commission believes do not ensure sufficient safeguards protecting investor assets in the event of the adviser’s malfeasance, insolvency, or operational failure….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

1 02, 2023

FedFin on: State Member Bank Powers

2023-02-01T16:54:12-05:00February 1st, 2023|The Vault|

In conjunction with rejecting an uninsured crypto bank’s application for Federal Reserve membership, the Federal Reserve issued a policy statement conforming state member bank powers only to those authorized for national banks even if the state member is an uninsured depository institution. While it is possible for state member banks to gain greater powers following Fed deliberations, the new approach sharply limits the ability of states to empower uninsured charters not only focused on cryptoasset activities, but….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

19 12, 2022

FedFin on: FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

2023-01-03T15:56:33-05:00December 19th, 2022|The Vault|

As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications.  As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought.  Much in it reiterates concerns about short-term funding markets, CCPs, and….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

12 12, 2022

Karen Petrou: Where New Crypto Enforcement, Regulatory Action Will Land

2022-12-12T15:50:07-05:00December 12th, 2022|The Vault|

As we’ve learned over the years, a memo written is a memo shared.  So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts.  Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots.  The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill.  Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation.

First, though, to incoming enforcement actions as these lay the groundwork for next-gen regulation.  Any bank with big crypto exposures no matter how otherwise pristine is already under its examiner’s gun in terms of immediate demands for an inventory of all crypto actions anytime for anyone.  The senators include this in their asks, looking for names as well as activities and customers.  But the banking agencies were surely already hot on this trail.

Any bank that failed to mind its prior-notice manners will surely get a public drubbing so that regulators can point to a host of cases that uncover all risks anywhere they lurk.  And banks now casting covetous eyes on cheap crypto assets will get a talking to from Washington if their own internal risk managers haven’t already …

5 10, 2022

FedFin on: FSOC: Cryptoassets Demand Top-Down Standards, Securities Regulation, Banking-Agency Cooperation

2022-10-05T14:51:32-04:00October 5th, 2022|The Vault|

In this report, we build on our initial assessment of FSOC’s conclusion that cryptoassets now pose systemic risk and the Council’s recommendations about what should be done to curtail it.  Unsurprisingly, the FSOC report reiterates Treasury’s conclusion that cryptoassets have few, if any, natural uses (see Client Report CBDC14), characterizing this asset class as largely speculative and/or focused on benefiting insiders.  Specific recommendations are detailed in this FedFin report, with FSOC focusing as much on inter-agency cooperation…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

22 09, 2022

FedFin on: The Cryptoverse Has A Big Black Hole

2022-09-30T12:03:14-04:00September 22nd, 2022|The Vault|

In this report, we follow our earlier analysis of Treasury’s CBDC recommendations and housing finance  with an analysis of another Treasury report in response the President’s executive order focused on the overall construct of cryptoassets in the U.S.  Treasury here makes its views even clearer than it did when favoring a CBDC.  It simply sees no “natural use case” for…

The full report is available to subscription clients. To find out how you can sign up for the service, click here.…

21 09, 2022

FedFin Analysis: Treasury Sees Few Crypto Benefits, Much Risk to Contain and Control

2022-09-30T12:11:23-04:00September 21st, 2022|The Vault|

We follow our prior in-depth analysis of Treasury’s CBDC and payments report (see Client Report CBDC14) with a detailed assessment of the Department’s assessment of overall cryptoasset policy.  We noted on Friday key recommendations and turn here to a more in-depth assessment of Treasury’s reasoning, recommendations, and likely action.  This section of the response to the President’s executive order (see Client Report CRYPTO26) is notably uncharitable to cryptoassets, observing that broader use cases beyond trading and lending within the crypto verse have yet to materialize and may never do so….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

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