Today the U.S. Senate voted for a bipartisan resolution to overturn the Securities and Exchange Commission’s (SEC) SAB 121, the staff accounting bulletin that makes it prohibitive for banks to offer digital asset custody services. This follows a similar Congressional vote last week. Today’s resolution was passed with 60 votes in favor and 38 against. That included the Democrat Senate majority leader Chuck Schumer voting in favor. His vote could prove important because last week, the White House vowed to veto the resolution if it were presented to the President.
The accounting rule requires listed firms, including banks to include assets under custody as both an asset and liability on their balance sheets. Usually these assets don’t go on the balance sheet because they belong to the client. Given bank capital requirements are based on their balance sheets, this means banks need to set aside huge amounts of capital to provide digital asset custody. It’s the reason why no banks provide custody for the Bitcoin ETFs.
The Government Accountability Office (GAO) determined that SAB 121 warranted a Congressional review. Apparently the SEC also did not consult with banking regulators before issuing the accounting bulletin.
Bipartisan opposition
Another Democrat who is unhappy with SAB 121 is Congressman Wiley Nickel. He co-authored the Congressional resolution and wrote to SEC Chair Gensler ahead of today’s vote urging him to withdraw SAB 121. He said he didn’t get a response.
“It’s the mission of the Securities and Exchange Commission (SEC) to protect investors. However, SAB 121 does just the opposite by preventing highly regulated American banks from placing digital assets in their custody at scale,” he wrote.
Senator Lummis proposed the Senate resolution. Before the vote, she highlighted how putting assets on the balance sheet disadvantages consumers in bankruptcy because it mingles the customer’s assets with the custodian’s. “Refusing to revisit this policy after bipartisan criticism is odd,” she said.
After today’s vote, she wrote on X, “The Senate passing a CRA overturning SAB 121 is a win for financial innovation and a clear rebuke of the way the Biden administration and Gary Gensler have persecuted crypto. It also marks the first time Congress has passed standalone crypto legislation. We are just getting started.” Senator Lummis also recently proposed a stablecoin bill.
The resolution prevents the SEC from making future rules on this topic, which is not ideal. However, given the GAO’s opinion last year, the SEC has had ample time to engage and update SAB 121.
Also see the opinion piece on SAB 121 exploring the flawed process and alternative ways to address risks
