Crypto’s new challenge: The community bank lobby

Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy.

Feb 03, 2023 View in browser   By Zachary Warmbrodt Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Small “community” banks are the darlings of Washington’s financial services bubble — beloved and protected by policymakers on the left and the right. The law even requires that the Federal Reserve Board have a member with community banking experience. The tiny but powerful lenders have a new test for their deep well of Washington clout: Convincing lawmakers and regulators to rein in the cryptocurrency industry. The push is spelled out in the legislative agenda that the Independent Community Bankers of America released this week. It urged lawmakers to take a closer look at regulatory agencies’ “inadequate” oversight of crypto and to resist efforts to let nonbank stablecoin issuers access the Fed’s payment rails. Paul Merski, who leads the group’s congressional relations teams,is blunt about where the association stands: “We don’t believe it should be part of the traditional banking system and lumped in together with that.” ICBA argues it’s a risk to the broader financial industry and lacks sufficient anti-money laundering safeguards. “Crypto is not new anymore,” Merski told MM. “What has it solved? … If anything, it’s become something that’s largely used for financial speculation and largely used for criminal activity. It’s up to the crypto sector to prove at this point that they’re safe, secure and superior, and I don’t think they’ve made that case.” It’s a challenge to startups who argue that digital asset services are a beneficial financial alternative, including stablecoins that proponents say can enable cheaper, faster, international payments. Some have floated the idea of becoming banks themselves. ICBA’s position matters becausethe kinds of lenders it represents are everywhere in the U.S. — constituting about 99 percent of all banks, according to the group. “We don’t draft the legislation but we’re probably often the first trade association that members turn to to get our review and opinions,” Merski said. ICBA echoes the concerns of congressional crypto skeptics like Sen. Elizabeth Warren. She has a bipartisan bill that would strengthen anti-money laundering regulations around crypto activities — something Merski said is “an important approach.” The think tank Coin Center has called the bill an attack on the privacy and freedom of crypto users and developers. The alignment underscores the political hurdles that digital asset firms face as they try to influence policy in the post-FTX era. “Cryptocurrency was an attempt to operate kind of a system outside the system,” Merski said. “Now, I’m suspicious that they’re clamoring to get regulated. Before, their competitive advantage they pitched was they weren’t regulated. We saw the consequences of that.” To be sure, some banks want to dabble in crypto. The American Bankers Association has called for greater oversight of nonbank crypto firms but it has also gone to bat for traditional banks that want to offer digital asset options, in particular custody services. Happy Friday — Before you clock out, please send tips to zwarmbrodt@politico.com and ssutton@politico.com.   JOIN POLITICO ON 2/9 TO HEAR FROM AMERICA’S GOVERNORS: In a divided Congress, more legislative and policy enforcement will shift to the states, meaning governors will take a leading role in setting the agenda for the nation. Join POLITICO on Thursday, Feb. 9 at World Wide Technology's D.C. Innovation Center for The Fifty: America's Governors, where we will examine where innovations are taking shape and new regulatory red lines, the future of reproductive health, and how climate change is being addressed across a series of one-on-one interviews. REGISTER HERE.     Driving the Day The Labor Department will release January unemployment figures at 8:30 a.m. … Deese’s exit is official, and now all eyes are on Brainard — President Joe Biden announced Thursday that National Economic Council Director Brian Deese will leave the administration, a long-expected move that increases the urgency for naming his successor. Fed Vice Chair Lael Brainard is expected to get the job. What’s next on the debt ceiling— Speaker Kevin McCarthy said he and Biden plan to meet again soon to talk about the debt limit, CNBC reports. “We left it that he’ll give me a call in a couple of days to set up the next meeting,” McCarthy told reporters. Monetary policy fly around — Markets on both sides of the Atlantic rose Thursday after digesting this week’s moves by the Fed, ECB and Bank of England. Investors are betting that the worst of the rate-hike campaigns may soon be over as inflation eases. — “Markets are taking a victory lap on what looks like coordinated ‘light at the end of the tunnel’ signalling from central banks,” Nomura analyst Charlie McElligott said in the FT. “[Central banks] have thrown gasoline on the fire.” — "Markets are saying 'you can say what you want right now, we know you'll change your tune,'" Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, told Reuters. — Major cryptocurrencies were also in the green Thursday afternoon, according to Coindesk. To clock or not to clock — Our Eleanor Mueller has a Capitol Hill dispatch on the latest rift among House Republicans over the U.S. debt. It’s all cosmetic. Rep. Thomas Massie (R-Ky.) has been turning heads on the Hill this week with a self-fashioned copper lapel pin displaying a real-time national debt clock. “This screen could show TV or pictures, but I dumbed it down to make it look like ‘80s LEDs,” he told reporters Tuesday. How have conservative colleagues responded? “The first reaction is, ‘Oh my gosh.’ The second reaction is, ‘How do I get one?’” Massie already has a debt clock in his office “so when people come in and ask for money … they can study the data,” he said. Asked whether House Financial Services Chair Patrick McHenry(R-N.C.) should restore the Jeb Hensarling-era debt clock in the committee’s hearing room, he lit up: “That’d be great if they did.” McHenry was notably less enthusiastic about the idea Wednesday, giving a curt “no” when asked about potential debt clock plans. “He's got a little different style than Chairman Hensarling,” the panel’s Housing and Insurance chair, Rep. Warren Davidson (R-Ohio), said with a laugh. Crypto Silvergate investigated over FTX ties— U.S. prosecutors are looking into crypto-friendly bank Silvergate’s dealings with FTX and Alameda Research, according to Bloomberg. Luetkemeyer takes aim at digital yuan— Rep. Blaine Luetkemeyer, the new chair of the House Financial Services national security subcommittee, introduced a bill that would bar financial institutions and payments businesses from using China’s central bank digital currency, our Sam Sutton reports. Tether boosts lobbying presence— Sam also reports that embattled stablecoin company Tether registered the government affairs firm DMM Consulting, led by Damian Merlo, as its lobbyist. El Salvador’s government is also a client of the firm. (WSJ has a new deep dive into the operations and founders behind the $68 billion stablecoin.) FTX exec cut big check to GOP governors group— POLITICO’s Hailey Fuchs reports that FTX executive Ryan Salame gave $500,000 to the Republican Governors Association just days before the exchange’s bankruptcy. The group appears to have kept the funds. ‘DarkFi’: A new crypto threat to governments— Our Ben Schreckinger reports on an international group of anarchist coders developing next-generation crypto tools for users who want to avoid surveillance. Regulatory Corner SEC targets hedge funds in messaging investigation — The SEC has asked Point72, Citadel and other firms for evidence of business dealings done via unofficial messaging platforms, Bloomberg reports. Fly Around Tech giants embrace austerity— NYT: “[A]s a boom that lasted 15 years comes to an end, shrinking profits are making tech executives rethink what they believed were important tools in an industrywide competition to hoard tech talent.” People moves—From Victoria Guida: The New York Fed announced that Piper Sandler analyst Roberto Perli will become manager of the central bank’s balance sheet, overseeing the process of shrinking its more than $8 trillion in assets.   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.       Follow us on Twitter Mark McQuillian @mcqdc Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

To change your alert settings, please log in at https://www.politico.com/_login?base=https%3A%2F%2Fwww.politico.com/settings This email was sent to rouf@idiot.cloudns.cc by: POLITICO, LLC 1000 Wilson Blvd. Arlington, VA, 22209, USA Please click here and follow the steps to unsubscribe.