The markets love digital dollars | #334
Also, how the Fed sees the future of bank supervision
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This week:
The markets love digital dollars
How the Fed sees the future of bank supervision
Stuff happens
1. The markets love digital dollars
After a failed attempt at a SPAC back in 2021-2022, Circle finally went public last week.
And the vibes were phenomenal, according to Coindesk’s Andy Baehr:
Standing within feet of Jeremy Allaire on the floor next to the bell balcony, doing our five-minute segment, it was pure electricity. It was the feeling when you finish a marathon and a beaming volunteer places a medal around your neck.
Accomplishment and validation. This was a moment enabled by a friendlier SEC and coincident with meaningful blockchain legislation, but it didn't have the vibe of MSTR rapture or youthful DeFi exuberance. It felt mature and financial--adults celebrating.
It wasn’t just vibes, the narrative around digital dollars was further validated by the markets, with CRCL extending its gains across three trading days. Here’s Yahoo Finance:
Circle's (CRCL) stock surged for a third day in a row on Monday following its blockbuster IPO last week.
Shares of the stablecoin issuer jumped more than 15% to trade near $122, nearly 300% above the debut price of $31.
The surge builds on gains from the previous two trading days, including an intraday surge of over 200% last Thursday shortly after the company's highly anticipated market debut.
Circle's IPO success comes amid bullish momentum in the crypto space, including the Trump administration's push for a friendly framework for cryptocurrencies, the president's business involvement in the space, and legislation in Congress that would regulate stablecoins.
2. How the Fed sees the future of bank supervision
Vice Chair for Supervision Michelle Bowman, last week, spoke at Georgetown University on how she’s thinking about the future of bank supervision and regulation (via Ron Oliveira):
At the core of these principles is pragmatism, which focuses on first identifying the problem to be solved and then developing efficient solutions.3 Once we have identified a need for reform, or a problem to be solved, our next task is to conduct a careful analysis of the intended and unintended consequences of any proposed policy solution, and to consider alternative approaches that lead to lower cost or better outcomes.
The views I share with you today reflect my initial thoughts about how these principles should be incorporated into the important work that will be required to improve supervision and regulation in the future, addressing: (i) enhancing supervision to more effectively and efficiently meet the Fed's safety and soundness goals; (ii) reviewing and reforming the capital framework to ensure that it is appropriately designed and calibrated; (iii) reviewing regulations and information collections to ensure that this framework remains viable; and (iv) considering approaches to ensure the applications process is transparent, predictable, and fair.
One area for improvement that Bowman highlights is a need for a more tailored regulatory framework by, for instance, acknowledging the distinction between big banks and their community brethren:
In the past, the Board has "pushed down" requirements developed for the largest firms to smaller banks, often including regional and community banks. One approach that would preserve tailoring is to create an independent community bank supervisory and regulatory framework to clearly separate these banks from larger bank supervision and regulation.
Another theme is one that Hard Yaka and USBC co-founder Greg Kidd has discussed in the past—risk management versus risk theater—which Bowman explicitly addresses:
Examiners review a broad range of activities in the supervisory process. A random sample of examination reports demonstrates that supervisory focus has shifted away from core financial risks (credit risk, interest rate risk, and liquidity risk, for example), to process-related concerns. While process is important for effective management, there is a risk that overemphasis on process and supervisory box-checking can be a distraction from the core purpose of supervision, which is to probe financial condition and financial risk. Checklists should not distract examiners from the central purpose of examinations.
Notably, Bowman also addresses the need for transparency when it comes to the regulatory approval process:
The process to file an application and receive regulatory approval, whether it involves banks seeking a de novo charter, institutions seeking to merge, or any other application for bank regulatory approval should reflect both (1) transparency as to the information required in the application itself, and the standards of approval being applied, and (2) clear timelines for action.
Recent experience with banking applications suggests that revisions would be helpful in this space. Streamlining the applications for de novo formation, and establishing clearer standards for approval, may encourage more de novo activity.
Similar problems have affected bank mergers and acquisitions, where there have been lengthy processing delays. We need to rethink whether many of the additional requests for information can be addressed through better application forms or relying on information that is available from bank examinations. We should also consider factors that force applications to be moved from Reserve Bank-delegated processing to requiring consideration by the Board. One example is the perverse effect of "competitive" screens that disproportionately affect transactions in rural and underserved banking markets. Another is the treatment of adverse public comments that may lack factual support or rely on matters already considered in the review process, including existing supervisory records.
3. Stuff happens
Robinhood Completes $200M Acquisition of Crypto Exchange Bitstamp
Via Ron Oliveira—Acting Comptroller of the Currency Discusses Regulatory Agenda
Stablecoin firm Circle adds to stellar first day gains with another stock surge
JPMorgan Plans to Offer Clients Financing Against Crypto ETFs
Stablecoins' step toward mainstream could shake up parts of US Treasury market