Protocol | Brian Deffenbaugh | Aug 11, 2022
A group of progressive senators including Elizabeth Warren and Bernie Sanders are calling on a federal banking regulator to pull Trump-era guidance that gives banks limited clearance to engage in crypto-related business.
In a Wednesday letter addressed to the Office of the Comptroller of the Currency, the senators pushed forward an ongoing debate over the role banks should play in the crypto ecosystem. Banking industry groups say the regulated institutions can bring stability to the volatile sector. But the lawmakers fear crypto could introduce systemic risk to the broader banking system without strict guardrails.
See: “Banks Won’t HOLDL”” href=”https://ncfacanada.org/bis-limits-banks-to-hold-1-of-reserves-in-bitcoin-banks-wont-holdl/”>BIS Limits Banks to Hold 1% of Reserves in Bitcoin –> “Banks Won’t HOLDL”
The OCC’s current guidance was published in late 2020 and early 2021. It gives federally chartered banks clearance to provide crypto custody service, hold cash reserves backing stablecoins and use blockchain technology and stablecoins to verify bank-to-bank payments.
Inaction vs. limitation
A banking industry trade group recently argued that limiting banks’ participation in crypto is counterproductive to protecting consumers. A Monday letter from the American Bankers Association to the Treasury Department noted banks are facing restrictions that mostly keep them out of digital assets, while there is still little regulation for non-banks involved in crypto.
Brooke Ybarra, senior VP of innovation and strategy, American Bankers Assocation:
The combination of these two approaches — inaction on the one hand to bring into the regulatory perimeter non-bank crypto companies, and limitation on the other of banks’ ability to engage responsibly in the digital asset market — creates an environment that makes it nearly impossible for responsible financial innovation to occur in this space.
Next
The senators’ letter calls on the OCC to take up a new process with the Federal Deposit Insurance Corp. and Federal Reserve to clarify how the banks they oversee can engage with crypto. The letter also includes a series of questions about how many OCC-regulated banks are engaging in crypto activities.
See: How the Big Five Banks Control Canada’s Payment Systems
The OCC, FDIC and Federal Reserve released a joint statement late last year promising further clarity would come for banks on crypto in 2022 — but guidance since then has been limited. The FDIC recently put out a statement warning banks they must monitor how the crypto firms they partner with advertise the availability of deposit insurance. That concern, plus Warren and Sanders’ attention, could be a signal of additional action coming.
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