Wall Street Asks Biden Not to Veto Congress’ Rejection of SEC Crypto Policy

As an analyst with a background in finance and experience following the regulatory landscape of the digital asset sector, I believe that the recent lobbying efforts by big banks and members of Congress asking President Joe Biden to reverse his stance on the U.S. Securities and Exchange Commission’s (SEC) crypto accounting policy is a significant development. The potential impact of SAB 121, if enforced, could limit regulated banking organizations from offering digital asset custody at scale, as these assets would be treated differently than other assets and require higher capital, liquidity, and prudential requirements.

Wall Street banks and certain members of Congress, an unusual alliance with the crypto community, have urged President Joe Biden to reconsider his stance on a US congressional resolution aiming to reverse the SEC’s cryptocurrency accounting rule.

In recent votes where Biden’s political allies opposed him in a bipartisan manner, Congress chose to overrule the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 121 (SAB 121). This controversial accounting standard would oblige banks to account for digital assets distinctly from other assets, necessitating their inclusion on a bank’s balance sheet. Crypto businesses have expressed concerns that this requirement could hamper their banking collaborations, and the banking sector shares these apprehensions.

In a letter to President Biden on Friday, several organizations including the American Bankers Association and Financial Services Forum argued that the Securities and Exchange Act (SAB) 121 presents a challenge for banks looking to offer digital asset custody at scale. The reason being, this law views these assets as if they are owned by banks instead of just being custodied, leading to stricter regulations and increased requirements such as higher capital, liquidity, and other prudential measures. Unlike non-bank competitors, institutions that must record these assets on their balance sheet face these burdensome regulations.

On the same day, Sen. Cynthia Lummis (R-Wyo.) and Rep. Patrick McHenry (R-N.C.) each penned a letter to President Biden, both dated May 30th. In their letters, they urged him not to veto, or instead collaborate with the SEC to retract the staff guidance in question.

As an analyst, I would express it this way: “I find that the SEC has the power to revoke SAB 121, and there is a significant history of such actions with staff accounting bulletins. In fact, a large portion of these bulletins issued over the past three decades have been modifications or withdrawals of previous directives.”

Seven additional reps, among them Reps. Mike Flood from Nebraska and Wiley Nickel from North Carolina, endorsed the letter as its sponsors: Reps. Mike Flood (R-NE) and Wiley Nickel (D-NC).

Biden’s warning against approving the resolution stated that eliminating the rule using the Congressional Review Act would result in a significant limitation of the SEC’s capacity to establish safeguards and manage future challenges associated with crypto-assets, affecting financial stability.

Eleven Democratic senators went against the president by voicing their opposition within their ranks. Notable among them were Chuck Schumer of New York, who serves as Majority Leader, and Ron Wyden of Oregon, the Finance Committee chairman. During an appearance at CoinDesk’s Consensus 2024 event on Friday, Wyden criticized the Securities and Exchange Commission (SEC) for establishing a distinct regulatory framework for crypto that deviates from financial sector standards set by others.

Last week, Gary Gensler, Chair of the SEC, attempted to clarify the intentions behind Staff Accounting Bulletin (SAB) 121. He emphasized that this was the regulator’s response to the chaos and investor losses in the crypto market throughout 2022. According to him, SAB 121 was merely a staff bulletin aimed at rectifying the issue of customer assets being included in the bankruptcy estates when crypto firms collapsed.

Biden has until Monday to make a final decision on whether to veto the resolution or not.