February 16, 2024

House Financial Services Committee Chair Patrick McHenry (R-NC) said that Republicans “have an understanding” with Ranking Member Maxine Waters (D-CA) on stablecoin legislation. The next steps are to work with stakeholders in the Biden Administration, the Federal Reserve (the Fed or FRB) and Treasury, Senate, and House of Representatives. Politico reported.

Rep. McHenry also stated that “this would be the first piece of digital asset legislation, so we want to get it right because it would then be the baseline for everything else to come,” and that he planned to “see what points of leverage I have” to get the legislation passed. He added that he might raise the issue with Federal Reserve Chair Jerome Powell when he testifies before the panel on March 6. Rep. McHenry further said that he plans to avoid asking Chair Powell about interest rates, but wants to dig into proposed changes to banks’ capital requirements.

The FRB, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) released the hypothetical economic scenarios for use in the upcoming stress tests under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Additionally, for the first time, the FRB released four hypothetical elements designed to probe different risks through its “exploratory analysis” of the banking system. The exploratory analysis will not affect bank capital requirements.

Read the FRB press release here.
Read the FDIC press release here.
Read the OCC press release here.

The FRB, FDIC, and OCC issued the 2023 Shared National Credit (SNC) report. The agencies reported that credit quality associated with large, syndicated bank loans remains moderate. However, the agencies noted declining credit quality trends due to the pressure of higher interest rates on leveraged borrowers and compressed operating margins in some industry sectors.

FRB Vice Chair for Supervision Michael Barr delivered remarks at the 40th Annual National Association for Business Economics (NABE) Economic Policy Conference in Washington, D.C. Vice Chair for Supervision Barr discussed the intersection of monetary policy, market functioning, and liquidity risk management.

Vice Chair for Supervision Barr also delivered remarks at the annual Columbia Law School Banking Conference in New York, New York. He discussed his review of the failure of Silicon Valley Bank, the goals and benefits of supervision, the speed, force, and agility of supervision, and how to intensify supervision at the right pace.

FRB Governor Christopher Waller delivered remarks on the dollar’s international role at “Climate, Currency, and Central Banking,” a conference sponsored by the Global Interdependence Center and the University of the Bahamas, in Nassau, Bahamas. He said, among other things, regarding digital assets and stablecoins that “it is likely that any expansion of trading in the DeFi world will simply strengthen the dominant role of the dollar,” since most stablecoins are dollar-denominated.

The Special Committee of the FDIC Board of Directors established to oversee an independent third-party review of the agency’s workplace culture issued a statement encouraging anyone who witnessed or experienced any sexual harassment or hostile, abusive, unprofessional, inappropriate or other interpersonal misconduct at the FDIC to share their experiences with Cleary Gottlieb. The statement also announced that the FDIC has agreed to waive any confidentiality restriction currently in place with employees that would otherwise preclude them from discussing specifics of their case or management’s responses to Cleary Gottlieb, the FDIC’s OIG, or any Congressional committee or subcommittee.

The Consumer Financial Protection Bureau (CFPB) released a report on credit card data. The report claims that small credit card issuers offer lower interest rates than larger companies, potentially saving consumers significant amounts on interest.

The CFPB announced that 8,571 consumers who were harmed by Performance SLC, a student loan debt relief business, and Performance Settlement, a general debt settlement company, will receive checks in the mail. The CFPB reported that from 2015 to 2022, Performance SLC charged thousands of consumers with federal student loans approximately $9.2 million in illegal upfront fees, violating the Telemarketing Sales Rule, to file paperwork on their behalf to apply for programs that were available to them for free from the United States Department of Education.

CFPB Director Rohit Chopra delivered remarks on overdraft lending. Director Chopra discussed abuses by large banks, junk fees, and the CFPB’s proposed overdraft lending rule.

Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam announced that Brian Young has been named the director of the CFTC’s Whistleblower Office. Mr. Young comes to the CFTC from the Department of Justice (DOJ), where he was the acting director of litigation for the Antitrust Division.

The SEC announced that registered investment adviser Van Eck Associates Corporation has agreed to pay a $1.75 million civil penalty to settle charges that it failed to disclose a social media influencer’s role in the launch of its new exchange-traded fund (ETF).

The SEC announced that registered broker-dealer TIAA-CREF Individual & Institutional Services LLC (TC Services), a subsidiary of Teachers Insurance and Annuity Association of America (TIAA), will pay more than $2.2 million to settle charges that it failed to comply with Regulation Best Interest (Reg BI) in connection with recommendations to retail customers to open a TIAA Individual Retirement Account (TIAA IRA).

Carole House, FS Vector Senior Advisor, Atlantic Council Senior Fellow, and Terranet Ventures Executive in Residence, testified before the House Financial Services Committee Subcommittee on Digital Assets, Financial Technology, and Inclusion hearing entitled “Crypto Crime in Context Part II: Examining Approaches to Combat Illicit Activity.” Ms. House’s key points included that: 

  • Responsible innovation does not mean unchecked technological advancement without regard to implications for society, security, and democratic values;

  • Crypto’s risk for illicit financial exploitation is not inevitable to always be that way, but the unique aggregate features of crypto compounded by the existing state of compliance domestically and abroad have cultivated an environment ripe for exploitation by rogue nations and fraudsters;

  • There are important mitigating measures like transparency that are helping to combat illicit finance, but critical and timely steps are needed to make best use of them; 

  • The status quo has not yielded benefits for consumers, the evolving DeFi ecosystem, or U.S. leadership; and

  • The CFTC TAC DeFi report outlined opportunities for approaching accountability, such as building in compliance features at different layers across the DeFi tech stack. It also highlighted ongoing infrastructure-focused regulations currently under development at DHS (cyber incident reporting) and Commerce (Infrastructure-as-a-Service KYC programs) that may have implications for DeFi components whether or not they are financial institutions.

Ms. House also proposed key areas for action, including: 

  • Enhancing regulatory and enforcement capability to take sustained, timely actions against the most egregious violators in the space through prioritized agency funding and honing of disruption authorities (e.g., FinCEN’s 311 and 9714);

  • Promoting timely international action on FATF standard adoption through diplomacy and capacity building across priority jurisdictions.

  • Enhancing outcome-oriented public-private partnerships for info sharing and R&D (examples like NCIJTF’s IVAN program, NCFTA, the FBI’s Financial Fraud Kill Chain, FinCEN’s Rapid Response Program, Crypto-ISAC, IST Ransomware Task Force, etc.); and

  • Promoting the development of secure, trustworthy, and interoperable digital identity infrastructure.

Senator Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, along with Senators Jack Reed (D-RI) and Elizabeth Warren (D-MA), members of the Banking, Housing, and Urban Affairs Committee sent a letter to Zelle CEO Cameron Fowler pressing him to clarify policies protecting consumers from scams and fraud on the instant payment platform.

The American Bankers Association, the Bank Policy Institute, the Financial Services Forum, and the Securities Industry and Financial Markets Association are calling on the SEC to amend nearly two-year-old guidance on cryptocurrency custody practices, warning that it has cut banks out of a critical piece of the market. Known as SAB 121 , the SEC’s guidance details that certain companies should be marking crypto assets they hold on behalf of customers on their balance sheets as liabilities. Read the industry groups’ letter to SEC Chair Gary Gensler here.

House Committee on Agriculture Chairman Glenn “GT” Thompson (R-PA); House Financial Services Committee Chairman Patrick McHenry (R-NC);  House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion Chairman French Hill (R-AR); and House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development Subcommittee Chairman Dusty Johnson (R-SD) sent a letter to Treasury Secretary Janet Yellen in her capacity as Chair of the Financial Stability Oversight Council (FSOC), demanding answers on FSOC’s calls to fill existing regulatory gaps in the digital asset spot market for digital assets that are not securities. The letter states that despite identifying these gaps, regulators have failed to facilitate an environment that ensures consumer protection and fosters digital asset innovation in the United States. The Congressmen state that the bipartisan FIT for the 21st Century Act would provide the clarity and certainty that digital asset spot markets desperately need. 

Need to catch up on what happened earlier this week? Check out our February 14th Midweek Update here