Biden’s SAB121 Veto Stands: What This Means for Banks and Bitcoin Custody

The U.S. House of Representatives recently failed to overturn President Joe Biden’s veto on a bill that would have allowed banks to custody Bitcoin and crypto assets. This legislative action revolves around the SEC Staff Accounting Bulletin 121 (SAB 121), imposing stringent accounting requirements on banks holding Bitcoin and crypto assets.

SAB 121 requires banks to hold Bitcoin and crypto assets on their balance sheets, which differs significantly from the treatment of traditional custodial assets that are typically considered off-balance sheets.

This policy, introduced by the SEC in March 2022, aims to ensure that banks maintain high accountability and transparency when handling digital assets. However, critics argue that this guidance discourages banks from offering Bitcoin and crypto custody services, limiting consumer options and potentially stifling innovation in the financial sector.

The House passed a resolution, H.J. Res 109, to nullify SAB 121, arguing that the SEC’s guidance unfairly burdens banks and discourages them from providing secure Bitcoin and crypto custody services. The bill garnered bipartisan support, with 21 Democrats joining 207 Republicans in favor of the resolution.

Despite this support in Congress, President Biden vetoed the resolution, emphasizing the need for stringent regulatory oversight to protect investors and ensure financial stability.

To overturn a presidential veto, Congress must achieve a two-thirds majority vote in the House of Representatives and the Senate. Historically, fewer than 10% of presidential vetoes have been successfully overridden, highlighting the difficulty of achieving such broad bipartisan support.

Supporters of the resolution, including several lawmakers and industry advocates, contend that overturning SAB 121 would enable banks to offer safer and more reliable custody services for Bitcoin and crypto assets, thus protecting consumers from less regulated and potentially risky alternatives.

House Financial Services Committee Chair Patrick McHenry stated, “SAB 121 effectively makes custodying customer crypto cost-prohibitive for financial firms.”

The American Bankers Association echoed this sentiment, arguing that the guidance “Threatens the industry’s ability to provide its customers with safe and sound custody of digital assets.” (ABA Banking Journal)​​ (Yahoo News — Latest News & Headlines)​.

On the other hand, the Biden administration and proponents of SAB 121 maintain that the guidance is crucial for maintaining a robust regulatory framework. They argue that relaxing these rules could introduce financial instability and market uncertainty, undermining investor confidence in the burgeoning Bitcoin and crypto market. President Biden emphasized that limiting the SEC’s regulatory capabilities could present risks to the financial system. (Yahoo News — Latest News & Headlines)​​ (ABA Banking Journal)​.

The failure to overturn the veto demonstrates the ongoing tension between innovation and regulation in the financial sector. While there is a clear desire among many lawmakers and industry participants to integrate digital assets into the traditional banking system, concerns about financial stability and investor protection continue to drive stringent regulatory measures.

This outcome may slow the pace of Bitcoin and crypto adoption by traditional financial institutions but underscores the need for a balanced approach to regulation that fosters innovation while safeguarding the financial system. (ABA Banking Journal)​​ (Yahoo News — Latest News & Headlines)​.

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