Congress questions Silvergate Capital
Posted on by John Ebbert

Senators Pressure Bank On FTX; Digital Assets Subcommittee Prioritizing Stablecoins

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senators pressure crypto bank

Senators Elizabeth Warrren (D, MA), John Kennedy (R, LA) and Roger Marshall (R, KS) announced in a press release yesterday that they still aren’t happy with bank holding company and fiat/crypto rails provider Silvergate Capital Corporation after the company was sent a December letter filled with the Senators’ questions about the company’s involvement with crypto exchange FTX.

From the Senators’ release: “The bank’s response (see it) was largely evasive and refused to provide much of the requested information on the grounds that it was ‘confidential supervisory information.'” The Senators also sent another letter on Monday to Silvergate CEO Alan Lane saying, “Your response confirms the extent of this failure – but then neglects to provide key information needed by Congress to understand why and how these failures occurred.”

As outlined in a December press release, the bipartisan group of Senators original inquiry was fueled by “concerns about Silvergate’s failure to apply extensive review processes to FTX and Alameda, and the possible role the bank may have played in the loss of billions of dollars of customer funds.” Or put another way: how did a U.S. bank go about vetting a Bahamian crypto exchange?

innovation + stablecoin bill

Rep. French Hill (R, AR) said on Fox Business yesterday morning that the opportunity he sees for any blockchain-related legislation in the new Congress starts with nurturing innovation. The new Chair of the Digital Assets, Financial Technology and Inclusion Subcommittee said, “Stepping away from cryptocurrency or even a digital dollar, think about the innovation around fintech and blockchain in the future -we want that done here in the United States… we need a solid regulatory framework.”

A stablecoin bill appears to be a top priority as Rep. Hill said, “Last year, we had some work with both the Treasury and House Democrats moving towards a stablecoin bill. This would tell investors and consumers what’s the value -what backs the stablecoin. How do you know what the value is? How frequently is it valued? When are their financial statements published? How is it overseen for both consumer and investor safety as well as to be able to be used in the commercial marketplace? We just don’t have that.” But maybe soon. Hear more from the Fox Business interview [begins 2:20].

In an interview with Bloomberg TV yesterday afternoon, Rep. Hill shared additional nuggets on his agenda, “I think we need to look with our colleagues both in the Senate and House Agriculture Committees and make sure that we can develop a ‘brightline’ test of what should be traded in an Ag or commodity type environment versus something that’s a security and under the regulation of the SEC.” See the full Bloomberg interview [6:15 in length].

the chair and the ranking member

On Monday, during discussion of H.R. 298, the “Expanding Access to Capital for Rural Job Creators Act” in the U.S. House of Representatives, the Chair and Ranking Member of House Financial Services took turns professing support of the bill and displaying continued civility toward one another. And, there was a brief tipping-of-the-hand of the Committee’s broader 118th Congress agenda which includes digital assets.

Addressing Ranking Member Rep. Maxine Waters (D, CA), who had just spoken, Chair and Rep. Patrick McHenry (R, NC) offered this encomium, “I thank the Ranking Member for her words and comments here. It is true we have worked together on capital formation initiatives in previous Congresses and I would hope that we will be able to do the same. I know of her upbringing in Missouri and her career in California. She has both rural and urban experiences that she can bring to this and I, likewise, have mainly rural upbringing to bring to this, but I think together we can craft a smart agenda, address the needs of the American people, and that is my intention with a focus on capital formation across the country, with the needs of a modern economy to digitize so many of our processes in the world of financial services, and the need to give architecture to a new range of assets that are in the financial services world around cryptocurrency and digital assets. There is a lot that is happening here that we have to embrace and allow that prosperity to be spread.”

Side note: McHenry “pushes back on allegations from conservative media that he’s pushing diversity and inclusion as a priority on the House Finance Committee” in this interview on a North Carolina radio station.

opportunistic ledger

Rep. David Schweikert (R, AZ) introduced the PORTFOLIO Act earlier this month. A.K.A. “Preventing Opportunistic Returns on Trades and Futures by Officials, Leadership, and Individuals in Office Act” [H.R. 389], the bill’s title is self-explanatory with digital assets and cryptocurrency making the “opportunistic” asset list and receiving a definition in the process: “CRYPTOCURRENCY OR OTHER DIGITAL ASSET.—The term ‘cryptocurrency or other digital asset’ means an asset that is issued or transferred using distributed ledger or blockchain technology, including: virtual currencies, coins and tokens, or any other digital asset specified by regulations of a filer’s supervising ethics office.” See the bill. Best Acronym of the 118th Congress (a.k.a. BA118C)?

from the halls of CRS

The Congressional Research Service (CRS) has produced a number of new backgrounders this month relevant to the crypto space including one piece titled, “Introduction to Financial Services: Derivatives.”

Among selected issues for the 118th Congress, CRS identifies, “The Commodity Exchange Act (CEA) gives the CFTC authority over derivatives linked to cryptocurrency. However, the CFTC lacks broader statutory authority to regulate trading on spot (in contrast to derivative) markets, apart from its powers to police against fraud and manipulation. For instance, the CFTC lacks authority under the CEA to regulate direct sales of crypto, to require trading platforms for spot crypto sales to register with the CFTC, to segregate customer funds, to regulate such platforms’ capital or risk management practices or investor disclosures, or to examine its records.” Read more.

crypto-obsessed Congress

Sheila Warren, CEO of the Crypto Council for Innovation, and Miller Whitehouse-Levine, Policy Director of the DeFi Education Fund, talk DC, crypto and 2023 legislation prospects on the latest Unchained podcast from Laura Shin. Warren and Whitehouse-Levine admit that FTX was damaging but divided government and factions within the House Majority aren’t helping legislative momentum. Nevertheless, Whitehouse-Levine says, “The odds of Congress getting something done might be slim, but I think it’s going to be an absolutely crypto-obsessed Congress. I think there will be more bills introduced than any… probably than every other bill to-date that’s been introduced in aggregate.” Hear it (1 hour, 10 minutes in length).

Dodd-Frank moment

“Governance, Regulation and Accounting for Digital Assets” was the topic du jour at an NYU conference last Friday. Dante Disparte, Chief Strategy Officer and Head of Global Policy at Circle, provided a keynote address and ruminated on the effects of 2022 crypto drama in the year ahead: “Perhaps crypto’s Dodd-Frank moment will follow as regulators and policymakers seem poised to end their wait-and-see observation period finally laying out a level playing field for responsible development of digital financial services. This is not only a matter of national security and competitiveness, it is a matter of extending beyond the physical limitations of brick and mortar banking and analog payment rails…” Read the speech. Circle is the “maker” of the USDC stablecoin.

in the lobby

Crypto lobbying nearly tripled its investment last year according to new analysis from Politico Influence. PI’s Caitlyn Opryso writes, “Nearly 60 crypto and Web3 startups as well as more-established companies, trade groups and other heavy crypto players reported pouring $26.6 million into lobbying efforts in D.C. last year, according to a PI analysis of disclosures. That’s up from $9.8 million in 2021, when more than half of those entities hadn’t even begun lobbying or were just beginning to stand up their influence operations in D.C.” Read more.

Binance remains an active lobbyist in DC in spite of – or due to – the recent collapse of centralized crypto entities such as FTX according to Punchbowl News’ Jake Sherman. He reports, “Binance, the crypto exchange, has hired Ice Miller to lobby (see the registration) on the ‘crypto industry.’ Ice Miller is Binance’s second lobbyist. They recently hired Hogan Lovells and spent $50,000 lobbying on ‘crypto industry issues.’ (see reg)”

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