My cold take on this is that 1) providing deposit services to crypto companies is not a big deal for financial stability* and 2) de-banking of conservatives is made up nonsense so this won’t change anything on that front. *so long as it isn’t concentrated and this actually lowers that likelihood.
Here is a very long article by Patrick McKenzie on debanking and crypto. I don't agree with everything he says, but it helps understand a bank's mindset around compliance and risk www.bitsaboutmoney.com/archive/deba...
I have a feeling that conservative is code for gun manufacturers here
de-banking is a real thing that happened, it just didn't happen because they were conservative. it happened because they were violating various anti money laundering laws by doing bizarre crypto-related transactions which may or may not actually have been money laundering
fundamentally they think the bad thing about sbf is that he made it more likely that banks would pay attention when you did things with crypto that were not clearly legal
it sounds bad to say 'i think anti money laundering and financial reporting laws should not apply to me' so they have instead claimed to be persecuted for their beliefs
"oh . . . you know the ones" except "the ones" are "I should get to do financial crimes" instead of "staggering racism"
yeah the belief is that the banking system should have no obligation to have basic KYC or fraud control or to know what type of business you are conducting
"*I* know the customer, it's me! what more do you need?!?"
as it happens the main way we prosecute financial crimes is by forcing banks to keep the records that can be used to prosecute them, and to sometimes report obvious systems of financial crimes. this is orwellian or whatever maybe but it's also how the thing works
yeah. financial regulations are hard to justify from within an atomic model of a free society, but on the other hand it's always like:
on the other hand, financial regulations become much easier to justify when pitted against the vast history of complicated financial scams, bamboozles, and just downright mismanagement. we didn't come up with the current scheme in a vacuum!
"should it be ILLEGAL for a man to dig up a certain rock on his own land? should it be ILLEGAL for him to discuss natural philosophy with learned men? should it be ILLEGAL for him to build a large structure in his back yard? Yet when I, Warlord McTechlord, pursue private nuclear breakout—"
like I get that they want to build the crime machine or the economic doomsday device out of purely voluntary, independently innocent transactions, but I don't think the law should be forced to behave as though it doesn't know what an a-bomb or a panic or a money laundering operation is.
we tried wildcat banking and it didn't work, there's a reason we have a more intrusive and centrally-regulated financial system than that
patio11 thought
i definitely have a shorter version of this because of patio but it's funny because uh, if you're familiar in the area, for any area, patio's take is usually just correct but is also probably excessively people-pleasing
he is so good at being correct and concise that you barely notice the nearly-pathological lack of willingness to start a fight of any kind
like. patio would never, ever say "this is demanding the right to commit financial crimes, and you're clearly full of shit". it is probably why he is so successful but it rubs me the wrong way
Given that 2) appears to be going after banks that cooperated with the Jan. 6 investigation that seems to be more about making it illegal to enforce laws against Republicans
I mean subpoenas are subpoenas
I thought the bigger issue for most banks was the risk of accidentally serving money launderers and/or sanctioned accounts indirectly because the crypto firms are not always great at preventing that
bsky.app/profile/pear...
The actual below the surface issue, I think, is that since the collapse of Signature Bank nobody has been willing to take on or re-establish the Signet crypto payment rails (I think some hedge fund bought the IP and said they were going to but quite conspicuously didn't)
Customers Bank was using the same vendor as Signature’s Signet ( Tassat ) and they picked up the business from Silvergate and Signature. Customers later migrated the platform off that vendor but it’s basically the same economics
I didn't think it had got back to anything like the same size particularly after the Fed enforcement last year?
It’s a fraction of Silvergate and Signature deposits (though it’s growing a lot recently), but it may be more efficient (ie settling nearly as many dollars on a much smaller deposit base). Banks and crypto cos are more aware of counterparty risk now
Well why don’t they just use the Silvergate exchange network instead lol
Crypto should have been cut off from the fiat dollar system and smothered in the crib a decade ago but that ship has sailed. In terms of actual financial system risk this is tinkering around the edges at worst. Stablecoins are a bigger risk.
Bitcoin earnings are out: REVENUES: $0 EPS: $0.00 GUIDANCE: $0
we can smother in a bigger crib
Because stablecoin provides convertibility to USD, but without the U.S. banking regulatory paradigm?
My favorite type of stablecoins are those that rely on other stablecoins to stay stable.
I wish this was a joke and im sure some people actually think it is.
💯
Have you consider it’s all bullshit like the universities, law firms, and media conglomerates and they are just looking to extort money and exert political control over the banks next?
The issue with stablecoins is they create large pools of assets which need to be invested in liquid securities (think t-bills, commercial paper, deposits). And outflows from a given stablecoin could drive a run on the deposits of an otherwise sound bank.
Yeah we saw… not this but a preview of what this could look like when we learned that USDC was one of the biggest accounts at SVB at $3.3B, which was nearly 10% of Circle’s deposits
This NBER study works through the liquidity problems at the heart of the stablecoin model. www.nber.org/papers/w33882
Especially since the GENIUS act put STABLECOINS ahead of depositor claims.
The assumption is that if they're only invested in t-bills, they won't run.
if they're only invested in t-bills then it's a non-issue for banks anyways
It's quite an issue if they cannibalize deposits.
Sorry I meant non-issue for run risk. Deposit cannibalization is an issue but that's a challenge to the income statement not solvency IMO.
Well, it depends on how they're regulated in the end. If stablecoins issued by institutions like JPM and others are regulated to not hold more than a certain percentage of assets for that purpose, I don’t think there’d be an issue.
Stable coins would need the discount window lol.
why is this risk different from the risk of outflows from money market funds that are invested in t-bills, CP, and deposits?
lack of regulation basically. MMMFs have all sorts of requirements around run risk.
MMMFs... the extra "M" is for extra regulations requiring more assets classified as DLA/WLA
Deprecate stablecoins and market tokenized MMF in their place then, I suppose
MMMF = money market mutual fund
I sincerely do not understand the appeal to offering a stablecoin other than “other banks are doing it”
Don’t they collect transaction fees?
Like it’s riskier than simple custodianship idgi
The biggest knock against these coins are that they have no reason to exist.
does this not A->B towards empowering stablecoins (spits)?
I don’t think this order is as important as the act passed by Congress a couple weeks ago in that respect tbh.
I’m not clear on stablecoins: if their underlying assets are dollar-denominated, it’s like saying U.S. debt is a threat to the dollar...
Does it include giving margin loans with crypto as collateral?
Doubt it. Margin loans are also one of those things where the devil is in the details. Offering $1 of margin for $10 worth of bitcoin is never going to be particularly risky, especially if it’s hard pledged (i.e. the lender has control of the assets on chain). $9…different story.
I was thinking 30% margin. $3 for $10…
I wonder if that would have been possible, but as you say, it's academic now.
Thank you!
Smothered in the crib is a v strong bid.
What are possible stablecoin risks - some bad actor putting the cash in risky stuff instead of t-bills, then losing the peg?
Basically a run like the kind that hit SVB
Yeah exactly. If you’re a bank and a lot of your liabilities are held by stablecoins that could get spicy.
Tether can print dollars out of thin air (and likely has)
Definitely has in the past.
New ethical dilemma: if you could go back in time and smother baby Satoshi, would you do it?
Here, here!!
How could we go about debanking conservatives in the future? Just, like, hypothetically?
A crypto economy dilutes monetary policy.
Right but financial stability isn’t the main rationale for the whole anti-money-laundering edifice that the crypto companies are upset about.
Sure , I was responding to the wave of posts on this claiming it was going to destroy the financial system.
Destroying the financial system is already baked into the cake
The only time I’ve ever heard this “de-banking” nonsense is from the Know Rogan guys making fun of Marc Andreessen’s appearance on Rogan, and then the Knowledge Fight guys making fun of Alex Jones. Real rough company.
As someone who works in financial services the idea of conservatives having it hard in the industry is hella funny
📌
I wonder if this incentivizes smaller banks to get into the crypto game like Silvergate
Yeah like smaller balance sheets loading up on crypto-related funding is the big bad outcome here IMO.
Out of curiosity: is banks not providing deposit services to crypto companies also a made-up problem? Or are bank doing it for reasons you think are irrational.
I mean it’s not made up in the sense that lots of crypto firms have had legitimate difficulty accessing basic banking services.
Yeah, my guess the banks say something like "promise you won't enforce anti-money laundering laws against us and we'll open an account for whoever"
FINALLY, someone is looking out and speaking up for America’s critically unbanked money launderers.
The bigger winners here are ransomware hackers
Another industry we have been losing to outsourcing in Asia. Bringing good ransomware jobs BACK to the U. S. of A!