#cryptocurrency

28 02, 2022

Karen Petrou: What’s to Come as SWIFT Sanctions Take Hold

2023-04-04T14:58:10-04:00February 28th, 2022|The Vault|

A few years back, I gave a speech at SWIFT’s annual meeting knowing little of what it did beyond the speakers I was invited to join.  While the meeting was in a cavernous conference center, the off-hours discussions in magnificent chateaus were small, serious, and — at least for me — insightful as to the awesome power of a seemingly-simple “messaging system”.  Now, of course, the world knows why Swift matters– indeed, Vladimir Putin is taking this so seriously that we’re all reminded of the literal meaning of the “nuclear option.” Putin is right –America’s “soft” economic power gives it a weapon of formidable might.

Will it backfire?  One of the questions I’ve repeatedly gotten over the weekend is whether U.S. banks can withstand market disruptions now or under even greater stress if sanctions expand to still more Russian banks and thereafter also to those still doing business with them.  In short, there is no doubt that banks in the U.S. will withstand near-term stress and even less-resilient ones in the EU and Japan will do the same.

The reason for this is the demonstrable certainty that central banks will intervene to ensure dollar liquidity across the world and financial-market liquidity wherever it seems threatened.  Unlike 2008 and 2020 when Fed windows were opened too wide and too long, this geopolitical crisis is of no financial firm or central bank’s making. What all this new money might do to already-bloated financial markets is yet to be known, but central banks …

15 02, 2022

FedFin: Stablecoin Legislative Consensus in Sight, But from a Distance

2023-04-04T15:59:02-04:00February 15th, 2022|The Vault|

Despite fierce partisan fighting over pending Fed nominations, today’s Senate Banking hearing on stablecoin regulation was considerably more bipartisan that last week’s HFSC session (see Client Report CRYPTO24).  Both Chairman Brown (D-OH) and Ranking Member Toomey (R-PA) are in broad agreement on a two-tier structure in which stablecoins are issued either by banks or by nonbanks subject to strict reserve-asset, AML, and related regulation.

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

14 02, 2022

Karen Petrou: Two Regulatory Decisions That Will Define the Future of Money

2023-04-04T16:07:43-04:00February 14th, 2022|The Vault|

Like all of you, we at FedFin spend a lot of time watching the U.S. Congress, but I’m increasingly wondering why.  Sure, there’s the blood and guts.  Watching Congressional deliberations is more and more like being a spectator at a hockey game for the fights or NASCAR races for the next fiery crash.  Does any of this carnage really matter?  Not much when it comes to vital, urgent financial policy questions such as what money has come to be in the United States.  With Congress mired in a never-ending cock fight, regulators hold the fate of finance mostly in their own fierce grip.  Even without deployment of the Fed’s nuclear CBDC option, two developments last week show clearly how much power regulators have to redefine U.S. digital currency.

First, there was outgoing FDIC Chair McWilliams’ offhand suggestion in her final remarks that stablecoins have all the characteristics of fiat currency deposits and thus could be eligible for FDIC insurance under current law.  As soon as he took the helm, Acting FDIC Chairman Gruenberg demanded tough cryptocurrency regulation, but he didn’t rule out deposit status for at least some stablecoins if the agency was satisfied with their stability.

The impact of an FDIC decision deeming at least some stablecoins to be deposits is hard to over-estimate.  As I detail in my book, what’s actually in a bank deposit isn’t what most people think they hold, i.e., a virtual pile of dollars.  In fact, money in the bank is …

14 02, 2022

Karen Petrou: Two Regulatory Decisions That Will Define the Future of Money

2023-04-04T16:07:34-04:00February 14th, 2022|The Vault|

Like all of you, we at FedFin spend a lot of time watching the U.S. Congress, but I’m increasingly wondering why.  Sure, there’s the blood and guts.  Watching Congressional deliberations is more and more like being a spectator at a hockey game for the fights or NASCAR races for the next fiery crash.  Does any of this carnage really matter?  Not much when it comes to vital, urgent financial policy questions such as what money has come to be in the United States.  With Congress mired in a never-ending cock fight, regulators hold the fate of finance mostly in their own fierce grip.  Even without deployment of the Fed’s nuclear CBDC option, two developments last week show clearly how much power regulators have to redefine U.S. digital currency.

First, there was outgoing FDIC Chair McWilliams’ offhand suggestion in her final remarks that stablecoins have all the characteristics of fiat currency deposits and thus could be eligible for FDIC insurance under current law.  As soon as he took the helm, Acting FDIC Chairman Gruenberg demanded tough cryptocurrency regulation, but he didn’t rule out deposit status for at least some stablecoins if the agency was satisfied with their stability.

The impact of an FDIC decision deeming at least some stablecoins to be deposits is hard to over-estimate.  As I detail in my book, what’s actually in a bank deposit isn’t what most people think they hold, i.e., a virtual pile of dollars.  In fact, money in the bank is …

8 02, 2022

FedFin: Partisan Impasse Suggests Small Chance for Stablecoin Statutory Change

2023-04-05T12:06:36-04:00February 8th, 2022|The Vault|

Today’s HFSC hearing on stablecoins makes it clear that the bipartisan legislation Chairwoman Waters (D-CA) prefers is at best a long way off. Democrats generally agreed with the President’s Working Group stablecoin report (see Client Report CRYPTO21), with Under-Secretary Liang today not only describing its findings but reinforcing the need for rapid regulatory intervention in concert with substantive statutory change.

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

31 01, 2022

Karen Petrou: CBDC’s Big Empty

2023-04-05T16:20:36-04:00January 31st, 2022|The Vault|

Anyone looking for even a scintilla of a clue buried in a hint of an intention in the Fed’s CBDC discussion draft hunted in vain for guidance on the most consequential strategic inflection point for the U.S. financial-services industry, the financial system, the global payment system, and even the future of money.  Once, we all would have had to wait for augers from the on-high Fed to see the fate the imperium decreed.  Now, the Fed still thinks it rules all it surveys even though it doesn’t.  Soon, it may find out the hard way that fast-moving companies crafting digital money care as little for the central bank’s wishes as they did for those of the media, hotel, and retailing magnates they have already supplanted.

This is not to say that we must necessarily have a central-bank digital currency.  As I noted in my book, a democracy must ensure privacy and competition in ways China, for one example, disregards.  Rather, it’s to say that the U.S. will not have a secure store of value or sound medium of exchange without a payment system on which the economy stands firm.  Payment-system finality, accessibility, ubiquity, and cyber-security are all at risk if the Fed cedes the CBDC field without first and fast establishing the new framework it knows we need.

Nor am I saying that CBDC is inevitable because stablecoins are a certainty.  Libra’s ignominious demise is ample evidence of the power regulators still have to set the terms of payment …

11 01, 2022

FedFin Assessment: Powell Sidesteps Many Challenges, Promises Much

2023-04-24T15:54:45-04:00January 11th, 2022|The Vault|

As promised yesterday (see Client Report FEDERALRESERVE66), we listened closely today to gauge the extent to which Chairman Powell faces a serious challenge to reconfirmation. At least as far as Senate Banking Members are concerned, he doesn’t. Although Sen. Warren (D-MA) and other Democrats lambasted Mr. Powell over insider-trading allegations and what they called the Fed’s unresponsiveness, all still were cordial and seemed generally to blame the problem on institutional failures, not the chairman. Sen. Menendez (D-NJ) called the Fed’s diversity policy “outrageous,” but also does not seem inclined….

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

13 12, 2021

Karen Petrou: Why Pro-Competition Consumer Finance May Not be Pro-Consumer Consumer Finance

2023-05-23T12:35:00-04:00December 13th, 2021|The Vault|

On Wednesday, several major crypto companies told Congress that the best way to govern them – should this be needed at all – is to create a new federal regulator that knows its way around the blockchain.  One trusts this proposal is a sincere effort at constructive engagement, but anyone who has run the financial-regulatory traps longer than a DLT minute knows that proposing a single regulator is the most effective way to look earnest and yet still roam free outside the regulatory perimeter.  There is simply no way Congress will pull itself together to enact a single crypto regulator.  And, even if Congress could do so, it shouldn’t.

Congressional obdurace about regulatory-agency rationalization isn’t because the financial-regulatory construct makes sense or even that Congress somehow thinks it does.  Congress knew that the multiplicity of banking agencies created undue opportunities for arbitrage and captivity at least as early as the 1971 Hunt Commission report arguing for what the then head of the Senate Banking Committee, William Proxmire, called the “Federal Banking Commission” when he tried to create one throughout the 1970s and early 1980s.  As banking blurred into financial services in the 1990s, the regulatory perimeter became even fuzzier and Congress tried to rationalize it in the 1999 Gramm-Leach-Bliley Act, ultimately having only minimal impact on the alphabet soup.

A new regulator – the Office of Federal Housing Enterprise Oversight – was created in 1992 for Fannie, Freddie, and the Home Loan Banks, but that was because the S&L crisis …

8 12, 2021

FedFin: HFSC Begins Political Taxonomy of Crypto-Asset Policy

2023-05-23T13:06:52-04:00December 8th, 2021|The Vault|

As anticipated, today’s HFSC hearing was a marathon session at which industry witnesses defended their business model, Republicans liked it fine, and Democrats worried about a wide array of policy challenges. While both sides of the aisle agreed that cryptoassets might well enhance financial inclusion, partisan battle lines formed over issues such as the extent to which stablecoins are fully reserved, covered by the securities laws, and if a single regulator for this sector is either desirable or feasible. Industry witnesses strongly rejected the PWG’s stablecoin conclusions (see Client Report CRYPTO21), suggesting for example that stablecoins are safer than bank deposits because they are fully – not fractionally – reserved.

 

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

6 12, 2021

Karen Petrou: Why Pro-Competition Consumer Finance May Not be Pro-Consumer Consumer Finance

2023-05-23T13:26:47-04:00December 6th, 2021|The Vault|

Under Rohit Chopra, consumer protection has taken an important, widely-overlooked turn with potent consequences for all retail financial-product providers.  Media coverage of the CFPB’s bigtech order, mortgage-discrimination action, and last week’s anti-overdraft campaign highlighted traditional issues such as fair lending and predatory pricing. These are indeed in the CFPB’s sights, but so also is a much bigger target: the extent to which a few large companies are said to be able to set consumer interest rates and otherwise dictate the shape of U.S. retail finance. This might cut big banks down to the puny size their critics seek, but it’s more likely to accelerate the transformation of retail finance into a wild west of unregulated providers outside the reach of safety-and-soundness standards and, in many cases, even of the CFPB. If this pro-competition campaign is mis-calibrated, the CFPB will put consumers at still greater risk.

Mr. Chopra’s interest in market competition doubtless derives from his stint as a lone, strong voice at the Federal Trade Commission who lost pretty much every battle he waged against giant corporate combos.  It surely stems also from President Biden’s executive order demanding that federal agencies take express pro-competitive action. And, indeed, there’s a lot to do in sectors such as tech-platform companies that already seem to have skipped over just being monopolies to become potent oligopolies with powerful impact over each aspect of everyday life, not to mention pricing and economic inequality.

However, neither traditional nor neo-Brandeisian antitrust theory applies well …

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