Lawmakers want the OCC to take banks’ crypto capabilities away

The news: Senators are asking the Office of the Comptroller of the Currency (OCC) to reverse guidance given to banks during the Trump administration on their crypto abilities, per Yahoo! Finance.

What’s happening? Led by Senator Elizabeth Warren, lawmakers sent a letter to the OCC asking it to rescind Trump-era guidance to banks on permissible cryptocurrency activities. Under that guidance, federally chartered banks can engage in limited crypto practices, including:

  • Providing crypto asset custody services.
  • Holding cash reserves backing stablecoins.
  • Using blockchain technology and stablecoins to verify bank-to-bank payments.

The letter asked the OCC to consult with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve to refine how the agencies oversee banks’ dealings in cryptocurrency. They implied that banks and traditional financial markets should remain insulated from the turbulence of the crypto market. Lawmakers also wanted to know how many OCC-regulated banks are currently engaging in crypto activities.

OCC response: The OCC reacted by reiterating comments Acting Comptroller of the Currency Michael Hsu made last week when he heard the letter was circulating.

  • Hsu told Bloomberg: “I think we’re doing a pretty good job. See Exhibit A: A whole bunch of stuff just happened, and the banking system is in pretty good shape, knock on wood. I think part of that is the actions we’ve taken.”

Last November the OCC said it would not revoke its guidance, but mandated that banks receive OCC approval before engaging in crypto activities.

How did we get here? Yesterday we reported on banks’ plea to the Biden administration to have a bigger role in developing crypto regulation.

  • Banks argue that the highly regulated sector is the safest place for crypto and digital asset innovation to occur.
  • They highlighted the risks consumers face when engaging in crypto activities with non-regulated entities, and pointed out that the strict regulatory environment in which they operate leaves them at a disadvantage regarding opportunities in digital asset markets.

Proponents of the banks agree that operating in a regulated environment would make the crypto market less prone to fraud and money laundering, minimizing threats to national security.

Opponents fear that allowing banks to take part in the crypto markets will open them up to greater fraud risks and potentially compromise traditional financial markets.

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