- Top Lines
This week, we saw regulators’ and policymakers’ fears concerning stablecoins and financial stability somewhat realized when Terra, formerly the third largest stablecoin by market capitalization, decoupled from its dollar-peg and dropped to as low as $.20, creating a black swan event in digital asset markets. We anticipate this will lead to increased attention from Congress and regulatory agencies, including the SEC, CFTC, OCC, FDIC, and the CFPB.
Speaking on the issue during a Congressional hearing, Treasury Secretary Janet Yellen said, “I wouldn’t characterize it at this scale as a real threat to financial stability but they’re growing very rapidly.” She added that stablecoins “present the same kind of risks that we have known for centuries in connection with bank runs,” and that “[t]he government has been clear that certain stablecoins are not suitable for payment purposes as they share characteristics with unbacked cryptoassets.”
- Weekly Wrap Up
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated individuals and entities critical to Russia’s ability to wage war against Ukraine. These include the board members of two of Russia’s most important banks, a Russian state-owned bank and 10 of its subsidiaries, a state-supported weapons manufacturer, and three of Russia’s state-controlled television stations that generate revenue for the state. OFAC is also taking action to cut off access to services that are used by the Russian Federation and Russian elites to evade sanctions.
Acting Comptroller of the Currency Michael Hsu said in a speech that the federal prudential bank regulators are considering whether to take additional precautions around bank mergers that could result in a firm that is too big to fail. Hsu said the OCC, FDIC, and Federal Reserve might require the parties in a large bank merger to demonstrate that the resulting institution could be safely unwound in the event of bankruptcy, without requiring a government bailout.
The Consumer Financial Protection Bureau (CFPB) published an advisory opinion stating that the Equal Credit Opportunity Act (ECOA)—a landmark federal civil rights law protecting individuals and businesses against discrimination in accessing and using credit—bars lenders from discriminating against customers after they have received a loan, not just during the application process.
The Federal Reserve published the May 2022 Federal Reserve Financial Stability Report, which summarizes the Federal Reserve Board’s framework for assessing the resilience of the U.S. financial system and presents the Board’s current assessment.
U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler said in an interview with Bloomberg that most digital assets fall under his agency’s purview and venues trading them should register with the regulator. He also said that the SEC is beefing up its enforcement efforts, recently adding 20 attorneys to its enforcement staff.
The CFPB is reportedly planning to hire 20 additional enforcement attorneys as it increases investigations of repeat offenders and expands its authority over nonbanks and fintechs.
White House Press Secretary Jen Psaki, when asked about whether the regulatory process for cryptocurrency needs to be sped up given the recent developments in the crypto market and the March Executive Order, stated that previously “there had not been an acknowledgement about the need to look into crypto — both the benefits and the challenges. And it’s an ongoing effort to do exactly that…I know that those who are running it from the Department of Treasury and otherwise want to make sure it’s thorough and that they’re assessing both of those important questions: the opportunities and the challenges. So I would point you to them on whether there could be any effort to expedite or whether that’s possible.”
- ICYMI
The Federal Deposit Insurance Corporation’s (FDIC) Board of Directors – FDIC Acting Chair Marty Gruenberg, OCC Acting Comptroller Michael Hsu, and CFPB Director Rohit Chopra – met in open session and issued an interagency proposed rule on the Community Reinvestment Act. Read the press release here, as well as statements from CFPB Director Rohit Chopra, OCC Acting Comptroller Michael Hsu, and Acting FDIC Chairman Martin Gruenberg. Comments on the proposal will be accepted on or before August 5, 2022.
- Upcoming Hearings & Events
Tuesday, May 17th at 10:00 AM ET (and subsequent days if necessary) The House Financial Services Committee will convene for a hybrid markup. *and subsequent days if necessary.
Wednesday, May 25th from 9:30 AM to 4:00 PM ET: Staff of the Commodity Futures Trading Commission will hold a public roundtable to discuss issues related to intermediation in derivatives trading and clearing..
Wednesday, May 26th at 12:00 PM ET: The House Financial Services Committee will convene for a hearing entitled “Digital Assets and the Future of Finance: Examining the Benefits and Risks of a U.S. Central Bank Digital Currency.”