U.S. Senators Call for Withdrawal of Crypto Guidance in Open Letter

U.S. Democratic Senators Elizabeth Warren, Sheldon Whitehouse, Bernard Sanders, and Richard J. Durbin wrote to the Office of the Comptroller of the Currency (OCC), expressing concern that “the OCC’s actions on crypto may have exposed the banking system to unnecessary risk.”

Referring to the crypto guidance, the senators asked the OCC to “withdraw existing interpretive letters that have permitted banks to engage in certain crypto-related activities.”

“In light of the recent turmoil in the crypto market,” the senators reminded the OCC of its responsibility to “safeguard the financial system from undue risk and ensure the safety and soundness of the banking system.”

Talking about previous interpretative letters issued by OCC, the Senators said that “the OCC determined that banks were authorized to engage in certain crypto-related activities, including: providing cryptocurrency custody service for customers, holding deposits that serve as reserves for certain stablecoins, and operating independent node verification networks (INVNs) and stablecoins for payment activities.”

However, the Senators criticized the current crypto guidance and said that the OCC issued an additional interpretative letter on crypto-related activities in November 2021 (Interpretive Letter 1179), confirming that the previously addressed activities “are legally permissible for a bank to engage in, provided the bank can demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity in a safe and sound manner.”

Demand for Stronger Protections to Mitigate Crypto Risks

Pointing out an excerpt from the OCC’s letter that said “there has been no contagion from cryptocurrencies to traditional banking and finance,” the Senators said that it is clear that stronger protections are necessary to mitigate crypto’s risks to the financial system and consumers during this recent market turmoil. 

The Senators also asked for clarification on certain points like specifications on the activities each bank has been approved to engage in under the OCC’s guidance and the estimated dollar volume of their activities.

The letter stated, “In total, please specify the number and names of banks regulated by the OCC which are currently engaged in the following activities: a. Providing cryptocurrency custody services. b. Holding dollar deposits serving as reserves backing stablecoins. c. Acting as nodes to verify customer payments. d. Facilitating stablecoin payment transactions.”

On the Flipside

The OCC has not given clarification on the approved banks engaging in other crypto-related activities, such as lending crypto assets or trading crypto assets or derivatives.

Why You Should Care

The Senators pointed out that the crypto market has plunged over the last several months, “astonishingly erasing about $2 trillion in value since its high in November 2021 and triggering the collapse of several major crypto lenders and firms.” 

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