HFSC HEARING
OVERVIEW
On July 9, the House Financial Services Committee held a hearing entitled “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System.” The witness in the hearing was:
- The Honorable Janet Yellen, Secretary, Department of the Treasury
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and a summary of all proposed amendments.
Key Takeaways
The following is a summary of some of the topics explored in today’s hearing. Each is discussed in further detail in the Discussion section below.
- The hearing focused on efforts to establish a regulatory framework for digital assets, the 45Z Clean Fuel Production tax credit, the anticipated fall release of the revised customer due diligence (CDD) rule, and Treasury’s commitment to meeting Reforming Emergency Powers to Obtain National Elections (REPO) Act deadlines. Additionally, discussions covered initiatives to close wealth gaps, the impact of Biden Administration policies on inflation, and potential concentration risks in digital asset custodianship.
SUMMARY
Opening Statements and Testimony
Chairman Patrick McHenry (R-NC)
The International Monetary Fund recently warned that U.S. deficits and debt now present “a growing risk to the U.S. and global economy and should be urgently addressed.” The Biden administration is failing to leverage U.S. standing at the international financial institutions to block financing for the Chinese Communist Party (CCP). At the same time, Treasury is proposing a multi-year process to stand up an entirely new bureaucracy to regulate private U.S. investment to China. The recently proposed rulemaking is a step in the right direction. However, this approach will take years to implement and lacks the urgency to address the threat posed by the CCP.
Ranking Member Maxine Waters (D-CA)
I commend Secretary Yellen’s work for stabilizing our banking system after last summer’s failures. Project 2025 would gut agencies like the Consumer Financial Protection Bureau and the Federal Reserve, and dangerously restructure Treasury, the Department of Housing and Urban Development, and other agencies critical to the economy.
The Honorable Janet Yellen, Secretary, Department of the Treasury
The United States built the international financial institutions 80 years ago with our allies and partners. Today, U.S. leadership at them is essential to our national and economic security. We work through the multilateral development banks to fight poverty and drive sustainable, inclusive growth, strengthening developing and emerging markets that are key trade and investment partners for the U.S. and addressing global challenges that threaten to undermine global economic growth.
Discussion
French Hill (R-AR): Will you commit to meet the mandatory required deadlines required by Section 104 of the REPO Act starting July 23? Yellen: We will meet the requirements of the act and we were pleased with the passage of the REPO Act. It provides Treasury and the administration with an important set of tools, and we think all options should be on the table.
French Hill (R-AR): Do you commit for the balance of this Congress to work with this Committee and the Senate to achieve a regulatory framework for digital assets? Yellen: Yes, very much so. I am happy to make that commitment.
French Hill (R-AR): What are you doing to bring the CFTC and the SEC together and be on the same page about digital assets? Yellen: It is not the job of the Financial Stability Oversight Council to adjudicate differences between members.
Mike Flood (R-NE): What is your view on decentralized trading protocols that do not create order book style markets or involve the custody of customers’ crypto assets? Yellen: This is certainly something the regulators are looking at. Some of these activities may fall under the regulatory umbrella of banking agencies as well.
Mike Flood (R-NE): If there are only a small number of entities that can serve as custodians of digital assets for registered investment advisors, would you agree that such an arrangement could constitute a concentration risk? Yellen: It could potentially, but I would need to know more details.
Mike Flood (R-NE): If there are only a small number of entities that can serve as custodians of spot bitcoin ETFS, would you view that arrangement as a potential concentration risk? Yellen: I would have to know more details and really look carefully at the case you are discussing.
Zach Nunn (R-IA): Will Treasury be able to meet their rulemaking deadline on the 45Z Clean Fuel Production Credit? Yellen: Treasury is working on it. I cannot give you an exact answer.
Ritchie Torres (D-NY): What impact on Treasury rulemaking do you expect from the loss of several Chevron deference? Yellen: I am concerned about the Chevron decision, as the White House has indicated it limits the use of agency expertise in deciding rules or deferring to rules put in place.
Frank D. Lucas (R-OK): Is it still your stance not to take a public position on the details of the Basel III Endgame proposal? Yellen: I am not going to take a stance on the details. I think it is up to the banking agencies and the rulemaking processes they go through. As you noted, the Fed intends to revise the proposal after receiving so many comments, and I am certainly supportive of that process and revising as appropriate.
Frank D. Lucas (R-OK): Do you agree that there are beneficial reforms that could increase participation the U.S. treasury markets? Yellen: There is certainly a reform worthy of discussion and at the time thought it was very appropriate to take that step and would be supportive of greater liquidity in the treasury market. Again, this is a decision for the banking regulators.