The ABA's Case That Crypto Could Drain Community Banks

**Brooke Ybarra** (0:00)
There will absolutely be deposit flake from community banks, and maybe that's going to end up back in the banking system from the sellers of treasury bills, but it's going to be redistributed, and it's going to come at the expense of community banks.
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**Renato Mariotti** (0:30)
Welcome to The Policy Protocol, your weekly espresso shot of the latest in crypto law and policy.
Everything that happened is still down to what actually matters. I'm Renato Mariotti, and Rebecca is back and here and doing well this weekend. Where the heck are you, Rebecca?

**Rebecca Rettig** (0:48)
I'm in an undisclosed location, but I am out in the woods, and right before we started rolling, I thought, oh, is the biggest hazard of being here, my Wi-Fi, but actually a bug fly on to me that I couldn't get off. Hopefully, we can keep things fairly level during this little episode.

**Renato Mariotti** (1:08)
Very cool. Yeah, it looks like you're glamping practically out there in the woods. Well, speaking out in the woods, we're all, I think, wondering a little bit about where we're at right now with clarity. I think that's what's on everyone's mind. It really, it looked like we were getting close. I think there was a lot of folks getting this done before the recess, sort of a do or die moment.
It didn't happen. Really, towards the end, it really looked to me like not only was there a lack of progress on ethics, there was a compromise that we talked about last week that was sent to the White House but never really went anywhere. It even seemed like I think the small banks were contacting Republicans and swaying some Republican votes and we didn't get where we needed to go.

**Rebecca Rettig** (1:59)
Yeah. I think the last, and this is a little bit of finance or the Lock Chain Regulatory Certainty Act.
I know I've talked about that ad infinitum on this pod, but I still think that was partly what was being negotiated when things were coming to the close last week as well. So, I don't think this is going to be a fully quiet time during August. I still think there's going to be a lot of work being done, good or bad, right? You can have people who want to see changes for their industry, who are going to continue to work and speak to staffers and make proposed language changes. And you're also going to have crypto industry participants working on this as well. I think something you and I have talked a lot about is that long-time financial institutions or trades have these very long-standing relationships in DC.
And crypto is still really a new entrant in the policy world. I know it doesn't feel like that for many of us who breathe this all day in and day out and who've been doing it from a very early stage. But I do think it is easier in many ways for financial institutions or their trades to come into places where they've built relationships over 50 years versus the five to 10 years that crypto has been doing work in DC.

**Renato Mariotti** (3:19)
Yeah.
When I've talked to policy makers and lawmakers, I mean, the feedback I have gotten is that essentially the crypto industry at times seems like they're new to this, they're amateurs in terms of lobbying and they don't have those relationships in terms of how they go about things. I think it matters. The fact that small banks were able to sway some key Republican votes at the very last minute just tells you how powerful that interest is, and I think it really opens up the question of where we're at. Because last week, Rebecca, you and I had a really good conversation about how the industry was evolving. I guess from my vantage point, I really think that in many ways, crypto-native companies can benefit if they're willing to take advantage of a lack of certainty. But I actually think that in many ways, TradFi can be hurt the most by a lack of clarity, so to speak.

**Rebecca Rettig** (4:21)
I think there's a couple of complicated pieces. One, just to go back to the small bank points, and we're going to get to that soon after our, after our Hesotics of the Week. But the other piece of that is, that is really what hits people's constituents, right? Thinking about how are my constituents actually going to be impacted day in and day out, is something that the small banks and their lobby are going to talk about. Same thing for others who may come in, law enforcement groups and the like, and can really make this real. And I think one of the things that crypto has long been working on in many different ways, is how this actually is relevant to day-to-day people's lives, and how are we building something useful? How is this going to change people's lives? And so I think making sure that the value, and that's something we talked about with Commissioner Peirce last week too, like, are you building valuable things and how does it help day-to-day people, is a message that we have to keep honing as we talk about things more broadly, but also in DC as well. I think the other piece of clarity, just to go back to your point about who's hurt and who's helped by this, obviously, regulatory clarity future-proofs the industry, having legislation in that way does future-proof things. But I think industry cannot overlook that it does put industry and traditional financial institutions on a very even playing field. And so whereas crypto-native companies did take advantage of being able to innovate and being much more risk-on, especially during the last administration when the price of participation was very, very high, right? Financial institutions do not like to get in a cross-airs with any regulator. And I think crypto was, even if we weren't willing to do it, it was just happening. And so we knew we needed to keep operating while that was happening. I think once you have clarity, the competition of who crypto is competing against changes dramatically.