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House Financial Services Committee Accuses Fed of Making Up Crypto Policy

2 mins
Updated by Michael Washburn
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In Brief

  • The House Financial Services Committee sent a missive to Fed Chair Powell expressing concerns about two recent letters restricting banks' digital asset activities.
  • Committee believes the Fed's letters undermine legislative progress on crypto regulation and severely overstep the Fed's legitimate authority.
  • Elected members demand answers from Powell on the rationale behind the letters, while accusing the Fed of making up policy without accountability.
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The House Financial Services Committee has sent a letter to Federal Reserve (Fed) Chair Jerome Powell expressing concerns about two recent Fed supervision and regulation letters regarding digital assets.

The latter two letters, titled “Creation of Novel Activities Supervision Program” (SR 23-7) and “Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens” (SR 23-8), went out on August 8, 2023.

The Financial Services Committee vs. the Fed

The first of those letters establishes a formal program to enhance oversight of emerging fintech activities in banking. The Novel Activities Supervision Program will include a focus on: 

“…crypto-asset custody, crypto-collateralized lending, facilitating crypto-asset trading, and engaging in stablecoin/dollar token issuance or distribution.”

The second of the letters outlined a supervisory approval process requiring state member banks to demonstrate adequate risk management capabilities before issuing, holding, or transacting in dollar-backed stablecoins.

Banks must receive written non-objection from the Fed prior to engaging in these emerging activities, which will undergo heightened monitoring.

The Fed Recently Published Two Controversial Letters

The Committee wrote of its concern that these actions may undermine progress made by Congress to establish a regulatory framework for payment stablecoins. Currently, Congress is grappling with multiple standalone crypto bills that could give much-needed clarity to the industry.

They said if the letters remain in place, it could deter financial institutions from participating in the digital asset ecosystem.

The letter states that Congress understands the need to provide regulatory certainty for payment stablecoins and digital assets. It also mentions that this recognition led to the Clarity for Payment Stablecoins Act. The Committee had positive things to say about the bill.

However, the Committee wrote that instead of working with Congress, less than two weeks after the Committee’s action, the Fed released the two letters. The Committee believes the letters effectively prevent banks from issuing payment stablecoins or engaging with digital assets.

Additionally, the letters were not issued in accordance with the process set forth by the Administrative Procedure Act. Or so the Committee argued.

Financial Services Committee Angry About Perceived Overreach

The letter states this represents an effort by the Federal Reserve to set policy without being held accountable. Under the US separation of powers, creating laws is the purview of the legislative branch, namely Congress.

However, with crypto and blockchain having emerged relatively quickly, the legislative branch has often been unable to keep track. In that gap, federal bodies like the SEC have often felt the need to step in and apply existing laws. This, in turn, has led to accusations from elected representatives that regulators are making policy up on the hoof.

Furthermore, the Committee included a list of questions for Chair Jerome Powell about the rationale and intentions behind the two letters.

It also requested documents related to the drafting of the letters. The Fed has yet to respond to the body’s inquiries.

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Josh Adams
Josh is a reporter at BeInCrypto. He first worked as a journalist over a decade ago, initially covering music before moving into politics and current affairs. Josh first owned Bitcoin in 2014 and has followed the space ever since. He is particularly interested in Web3 adoption, policy and regulation, CBDCs, privacy, and the future of the metaverse.