[UPDATED] The banks won't give an inch. As to crypto, or otherwise. Aside from that truism: Sens. Warren and Smith might turn attention toward the Silvergate/Home Loan Bank/FDIC situation. Someone should call their attention to that.
In line with the thinking of the two Senators, bank regulators, (and perhaps those within the entire established active banking industrial complex, with their Fed), are more than happy to keep the established way of doing things flourishing apart from crypto; and to see crypto lessened in its spread. Some within that grouping even publicly state the thought that a CBDC might be a bad idea. (More on that later.)
WASHINGTON — Every once in a while two running news stories, with their attendant jargon and acronyms, collide into each other in a spectacular fashion. And that's precisely what has happened with Silvergate Bank's recent meltdown and revelations that the bank has tapped the Federal Home Loan Bank System for more than $4 billion in advances last year.
SO - Two themes then run together in the balance of the article: crypto failings bailed out, (in fact and as a question of moral hazard), and then thoughts on who might unexpectedly get a security-interest priority ahead of the FDIC when a bank goes splat.
The second theme is less known to the general public. Continuing to quote:
The background for those who haven't been following the intricacies of the crypto winter and the Biden administration's renewed attention to the Home Loan banks: Silvergate Bank, a federally insured member of the Federal Reserve System that serves as a depository for various crypto ventures, recently experienced a run on its deposits to the tune of $8 billion, or roughly 70% of its total deposit base. And over the past year, the nearly century-old Home Loan Bank System has been facing growing questions about whether it is fulfilling its public mission and/or whether that mission should be revisited.
But today's report that Silvergate tapped the Home Loan Bank System for more than $4 billion in advances in 2022 raises important questions about whether cryptocurrency has made greater inroads into traditional finance than is currently understood on the one hand, and whether the Home Loan banks are propping up crypto investors at the expense of traditional bank depositors on the other.
The Home Loan banks exist, at least ostensibly, to give banks low-cost liquidity that they can then use for "housing finance, community lending and asset-liability management as well as liquidity for members' short-term needs," according to the Home Loan banks' mission page. It would appear that Silvergate, which describes itself as the "leading provider of innovative financial infrastructure solutions and services for the growing digital currency industry" was advanced some $4.3 billion to meet its short-term needs.
To be absolutely clear, neither Silvergate nor the Home Loan Bank System did anything wrong here — Silvergate has access to the Home Loan banks, and the Home Loan banks took government-backed securities from Silvergate in exchange for the liquidity advances. Silvergate is a publicly traded firm that is more heavily regulated than, say, FTX; has laid off hundreds of employees earlier this year to tighten its belt; and appears to have weathered the storm so far.
[... This] episode doesn't shine a bright light on how the Home Loan Bank System is being used in ways that are wildly divergent from their original intended purpose on the one hand and how staggering losses from cryptocurrency investments are finding their way back to traditional finance on the other.
And here is where the Home Loan Bank holding a collateral interest bites -
That latter point is especially important because in the event of a bank failure, the Home Loan banks would get paid back before other creditors and the Federal Deposit Insurance Corp. as receiver. So if regulators were to shut down Silvergate or a similar bank that facilitates crypto and owes a Home Loan bank money, the failure could prove more costly to the Deposit Insurance Fund.
[...A]s the crypto winter drags on — and there is really no reason to assume that the market has hit bottom — we may become increasingly aware of how many other banks that made big bets on crypto have received similar advances.
At the very least, Silvergate's Home Loan bank advances look not-so-great for Silvergate and the Home Loan banks. But this episode could also be illustrative of how the crypto winter is not as self-contained as regulators would like us to think.
As an interesting aside, re the earlier Crabgrass terminology, ("perhaps those within the entire established active banking industrial complex, with their Fed") asserting that the Fed is the banking system's owned and run tool (besides being intended as an anchor to smooth business cycles in the public interest) there exists an affirmation of sorts; i.e., a Federal Reserve Bank of Minneapolis official on record, (to the best of my knowledge), that public disclosure law exempts the Fed because it is not a federal agency per FOIA definitions, nor a State agency, and instead is exempt from the reach of either public disclosure law's requirements.
Indeed, the Fed is for and by the banks. An interesting question is whether alternate payment private sector ventures outside of banking (and banker's hours) while using online mobile devices via android or iPhone apps, yet while dealing in dollars and cents and not crypto, is regulated by anyone at all and if so, by whom?
NEW YORK — The Federal Reserve has a neutral stance on whether it pursues its own digital currency, but at least one regional bank president remains deeply skeptical of the idea.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said consumers already had access to instant digital payments through private-sector platforms without the privacy concerns that arise from a government-backed alternative.
"I can see why China would do it," Kashkari said. "If they want to monitor every one of your transactions, you could do that with a central bank digital currency. You can't do that with Venmo. If you want to impose negative interest rates, you could do that with a central bank digital currency. You can't do that with Venmo. And if you want to directly tax customer accounts, you could do that with a central bank digital currency. You can't do that with Venmo. I get why China would be interested. Why would the American people be for that?"
[...] Whether the Fed needs a CBDC has become an increasingly debated topic duringthe past two years. Advocates say the U.S. should strive for a leading position in the currency digitization rates anddetractorscall it asolution in search of a problem.
The Fed has been studying the concept of a CBDC in recent years in the interest of staying on top of the technology, but Fed leaders have said they would prefer to wait for direction from Congress before rolling out a digital dollar. Still, recent speeches have given the idea more deference and an external push for CBDC authorization is gaining traction.
Kashkari said crypto assets broadly are "95% noise, hype and confusion." He said that since it is possible that digital asset technology leads to some type of crucial advancement, it should not be disregarded entirely.
In the wide-ranging interview, Kashkari also defended the right for reserve banks to set their own research agendas, something that has been called into question by lawmakers who feel the regional banks are deviating from the Fed's core mission.
Kashkari said the Fed system was designed to have regional banks that could reflect and understand economic issues in their districts.
"George Floyd was killed down the street, a mile or so from our bank," he said. "And this is a very real issue in our city, the racism in Minneapolis and the economic disparities."
Sen. Pat Toomey, R-Pa., the ranking member of the Senate Banking Committee, has called out Kashkari for endorsing an amendment to the Minnesota Constitution to guarantee all children a "quality" education. Toomey has deemed it political activism. Kashkari maintains the change would advance the Fed's goal of maximum employment.
So, who regulates Venmo?
Beyond that, a question of propriety -- Things one expects from an active office-seeking Republican politician, activism in lobbying for altering long established State Constitutional public education law and language in favor of a rewording having enhanced potential private school voucher possibilities - the kind of thing the Jensen-Birk ticket pushed last election, sits strangely as a Fed Regional Bank center's policy and it's actual funded planning and actions; i.e., investing public labor, time and funds in advancing the boss's keenness to futz around with State law grounded in the key document of Statehood.
Things of that kind seem indecorous for a Regional Federal Reserve Bank to be lobbying for; and that has been reported as called into question by one of Warren's and Smith's Senate colleagues.
It leads one to think whether labor, time and funds of that singular Fed outlet might also be aimed to lobby, federally, against CBDC while the official Fed "neutral stance" noted at the outset of the report is official Fed-wide policy.
________UPDATE______
As to this paragraph from above:
In the wide-ranging interview, Kashkari also defended the right for
reserve banks to set their own research agendas, something that has been
called into question by lawmakers who feel the regional banks are deviating from the Fed's core mission.
Wings clipped? Strib, Feb. 24, 2023 -
Neel Kashkari and other Fed employees now prohibited from advocating for constitutional amendments
The new code of conduct policy comes after Kashkari had spearheaded an
effort to change Minnesota's education clause in the state
Constitution.
A recent change to the
Federal Reserve's code of conduct now prohibits the kind of advocacy
Minneapolis Fed President Neel Kashkari has done in recent years to
support a proposed constitutional amendment aimed at reducing
educational disparities in Minnesota.
According to new language added to the Fed's policy:
"An employee may not use, or create the appearance of using, their
position or bank resources to influence a partisan or non-partisan
election or ballot initiative, such as a referendum or constitutional
amendment."
A Fed spokesman said the
Board of Governors in Washington, D.C., approved the new clause and
required all Fed regional banks to adopt it. Bloomberg first reported on the development.
A Minneapolis Fed spokeswoman confirmed the bank updated its policy with the change on Dec. 1.
She did not provide further comment from the bank or Kashkari. But the Minneapolis Fed has pulled down some pages related to the constitutional amendment from its website.
The idea for the proposed amendment grew out of conversations between the two leaders following a Minneapolis Fed report that showed Minnesota has some of the largest educational gaps by race and socioeconomic status in the U.S.
They pitched the idea as a way to get through political gridlock
and to finally close the state's large achievement gap, which they
noted had shown little improvement despite a number of efforts
throughout the years. They traveled around the state, holding community
conversations to build support for the proposal.
The Minneapolis Fed also
produced related research, such as a report showing other states that
adopted similar constitutional amendments did not see a significant increase in court cases, which was one of the often-cited concerns about the proposal dubbed the "Page Amendment."
While the proposed amendment
had bipartisan support, it also drew strong bipartisan resistance and
failed to gain traction at the State Capitol. In particular, it ran into
steep opposition from the teachers union, which raised a number of concerns, including whether it could allow for the creation of vouchers for private schools.
Key sponsors of that "Page Amendment" effort each went to elite private highschools; Mike McFarland to a leading elite Jesuit Catholic school in Omaha; Neel Kashkari to a nonsectarian ultra-elite private high school in Cleveland; and Page, who graduated from an Indiana Catholic high school, and Notre Dame.
McFarland has served on the board of Cristo Rey in the Twin Cities; it being an exclusive private Jesuit high school requiring parental commitment as well as student committment to ideals of the Cristo Rey effort, which has schools centered elsewhere in the USA. The Twin Cities Cristo Rey program has been successful in its alums going on to college at a higher than average rate; but questions exist on whether its being blessed by business internships for students is a realistic schooling approach that could scale to full sized multi-purpose districts, independent of any religious indoctrination bias.
Now McFarland and Page have unimpeded voices while Kashkari works under Fed guiding rules.
McFarland unsuccessfully ran as a Republican candidate for the Senate; as did Kashkari for Governor; McFarland in Minnesota against Klobuchar; Kashkari in California against Jerry Brown. Each lost, the Democrats gaining 60% of the vote.
Both McFarland and Kashkari have succeeded in private sector wealth management business - i.e., each serving the financial interests of an elite.
Mike Ciresi, a former DFL candidate, also is on the board backing the Amendment; so it is not entirely a Republican private school/voucher agenda item.
Ciresis [sic] has been on the Board of Trustees of his alma mater, the University of St. Thomas, and on the Board of Governors of the University of St. Thomas School of Law.
And, per Wikipedia again, that law school offers a joint degree program, "the JD/MA in Catholic studies," while
The Terrence J. Murphy Institute for Catholic Thought, Law and Public
Policy is a partnership between the Center for Catholic Studies and the
School of Law at the University of St. Thomas. The Institute explores
the various interactions between law and Catholic thought on topics
ranging from workers' rights to criminal law to marriage and family.
Whether Ciresi went to public K/12 schools or private was not found on the web.
Doubtlessly, private Catholic K/12 schools would welcome vouchers for their financial benefit, however directly or indirectly vouchers might gain acceptance.
__________FURTHER UPDATE__________
With regard to Silvergate, the bank with extensive crypto dealings, Warren has made inquiry while reporting does not appear to mention Sen. Tina Smith as a coparticipant with Warren and two other Senators.