[Congressional Record Volume 170, Number 80 (Wednesday, May 8, 2024)]
[House]
[Pages H2950-H2963]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              {time}  1215
 PROVIDING FOR CONGRESSIONAL DISAPPROVAL OF THE RULE SUBMITTED BY THE 
   SECURITIES AND EXCHANGE COMMISSION RELATING TO ``STAFF ACCOUNTING 
                           BULLETIN NO. 121``

  Mr. McHENRY. Mr. Speaker, pursuant to House Resolution 1194, I call 
up the joint resolution (H.J. Res. 109) providing for congressional 
disapproval under chapter 8 of title 5, United States Code, of the rule 
submitted by the Securities and Exchange Commission relating to ``Staff 
Accounting Bulletin No. 121``, and ask for its immediate consideration 
in the House.
  The Clerk read the title of the joint resolution.
  The SPEAKER pro tempore. Pursuant to House Resolution 1194, the joint 
resolution is considered read.
  The text of the joint resolution is as follows:

                             H.J. Res. 109

       Resolved by the Senate and House of Representatives of the 
     United States of America in Congress assembled, That Congress 
     disapproves the rule submitted by the Securities and Exchange 
     Commission relating to ``Staff Accounting Bulletin No. 121'' 
     (87 Fed. Reg. 21015 (April 11, 2022) and a letter of opinion 
     from the Government Accountability Office dated October 31, 
     2023 (which was printed in the Congressional Record on 
     November 1, 2023, on pages S5310-5312), concluding that such 
     Staff Accounting Bulletin is a rule under chapter 8 of title 
     5, United States Code), and such rule shall have no force or 
     effect.

  The SPEAKER pro tempore. The joint resolution shall be debatable for 
1 hour equally divided and controlled by the chair and ranking minority 
member of the Committee on Financial Services or their respective 
designees.
  The gentleman from North Carolina (Mr. McHenry) and the gentlewoman 
from California (Ms. Waters) will each control 30 minutes.
  The chair recognizes the gentleman from North Carolina (Mr. McHenry).


                             General Leave

  Mr. McHENRY. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days in which to revise and extend their remarks 
and submit extraneous material on the joint resolution under 
consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from North Carolina?
  There was no objection.
  Mr. McHENRY. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in support of this bipartisan resolution of 
disapproval. This resolution is an essential effort to protect 
consumers and foster innovation in digital asset markets.
  It is also critical to stop the Securities and Exchange Commission's 
regulatory power grabs and efforts to circumvent the Administrative 
Procedure Act.
  I thank my friend Congressman Flood of Nebraska, a leader on 
financial innovation and digital asset policy, for introducing this 
bipartisan resolution.
  Staff Accounting Bulletin 121, or SAB 121, is one of the most glaring 
examples of the current Securities and Exchange Commission's reign of 
overreach.
  Through SAB 121, the Commission is trying to dictate how financial 
institutions and firms safeguard Americans' digital assets, in 
particular here, digital assets, under the guise of so-called staff 
guidance.
  Let me explain why this is deeply concerning. Because they call it a 
staff guidance, the Securities and Exchange Commission could avoid 
public comment and the rulemaking process governed by the 
Administrative Procedure Act, or APA.
  This is where the public gets to give an opinion back or expertise 
back to the agency so they can improve the rulemaking by listening to 
the public. This is a longstanding process here in the United States.
  Not only did the Securities and Exchange Commission bypass Congress 
and the Comptroller General, but the Commission did not even consult 
with other financial regulators, prudential regulators responsible for 
overseeing banks prior to issuing SAB 121.
  Thanks to the work of the House Financial Services Committee and my 
friend Senator Lummis, the GAO rightly deemed SAB 121 a rule for 
purposes of the Congressional Review Act, providing Congress with the 
opportunity to right the wrong of the agency action.
  SAB 121 requires financial institutions and firms that are 
safeguarding their customers' digital assets to hold those assets on 
their balance sheet.
  That means banks would be required to take on significant capital 
liquidity and other costs under the existing prudential regulatory 
framework.
  This essentially makes it cost prohibitive for financial institutions 
to custody their customers' digital assets.
  This is a massive deviation for how highly regulated banks are 
traditionally required to treat assets they hold on behalf of their 
customers.
  Now, this is the point that everyone can understand. This is a change 
that harms consumers and makes them less protected. It is not a change 
for the better, clearly.
  It limits the options for consumers and increases concentration risk 
to the financial system. Perhaps even worse, it could leave Americans' 
assets vulnerable in the event of a bank failure, just as we saw with 
Silicon Valley Bank last year.
  If you want Americans' assets to be protected, they should be held in 
custody, not on a bank balance sheet. If you want Americans to be able 
to engage with digital assets safely and securely, banks, which are 
some of the most highly regulated entities in our country and in the 
world, are probably the best places for them to be kept. Unfortunately, 
SAB 121 makes this nearly impossible.
  We hear a lot from our Democrat colleagues about consumer protection. 
If that concern is genuine, and I think it is, they should support 
Congressman Flood's bipartisan resolution before us today.
  Let me give you one example of why this guidance is problematic. The 
Securities and Exchange Commission recently approved 11 Bitcoin ETFs, 
which allow everyday investors to gain exposure to this new technology. 
It is a decade old, but it is relatively new.
  Of those 11, zero--and I repeat, zero--use banks as their primary 
custodian. Instead, all that risk is now concentrated in a few 
entities.
  Let's do a quick recap. The Securities and Exchange Commission 
through Staff Accounting Bulletin 121 upended traditional custody 
practices.
  Just like you hold a stock with a stockbroker, it is held in custody. 
That means if that entity goes bankrupt, your asset is still protected. 
It is held in custody and safeguarded as if it is in a safe.
  We want digital assets to be treated the same way that we treat other 
assets and be protected. This staff accounting bulletin upends 
traditional custody practices for banking institutions and makes a joke 
of the rulemaking process and ignores other regulatory agencies and 
market participants that are impacted by this bulletin. That is a bad 
process with even worse policy outcomes.
  If you want consumers to be protected in digital assets markets, vote 
``yes'' on this resolution. If you want to return bank custody 
practices to the tried, tested, and successful approach that we have 
had in this country for centuries, then vote ``yes.'' If you support 
financial innovation, you should vote ``yes,'' as well.
  Finally, if you want to send a message that rogue regulators cannot 
circumvent Congress and our well-established rulemaking process, vote 
``yes.''
  Let's bring a level of common sense into the world of the digital 
asset debate or crypto and bring consumer protection back to this 
marketplace where it needs to be.

  I encourage my colleagues to vote ``yes'' on this Congressional 
Review Act.
  Finally, I thank Congressman Flood on the Republican side and 
Congressman Nickel on the Democrat side for their leadership on this 
important topic.
  Mr. Speaker, I reserve the balance of my time.
  Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in strong opposition to H.J. Res. 109, a 
Congressional Review Act resolution that would overturn accounting 
guidance for crypto

[[Page H2951]]

assets from the Securities and Exchange Commission known as Staff 
Accounting Bulletin 121, or SAB 121.
  The bill's sponsors have falsely asserted that this bill is meant to 
address a narrow concern from a particular special interest group, but, 
in reality, it is drafted in a way that is far broader than this narrow 
concern.
  The collateral damage caused by this CRA resolution would be far-
reaching, causing significant harm to investors, consumers, public 
companies, and the safety and soundness of our capital markets.
  The bill takes a sledgehammer to fix an issue that may merely need a 
scalpel, and it does so because my colleagues on the other side of the 
aisle are not only interested in doing the bidding of special interest 
groups, they are also interested in attacking and undermining the SEC 
in every possible way, as they have done relentlessly since the 
beginning of this Congress.
  SAB 121 is highly technical guidance, therefore, let me break it down 
simply. SAB 121 has been in place for 2 years, and it only applies to 
companies that hold crypto assets on behalf of their customers.
  This is known as providing custody services. SAB 121 provides 
guidance for these companies in two respects.
  First, it advises companies on how they should disclose crypto assets 
that they have in custody, and second, it advises companies on how they 
should record those crypto assets on their balance sheets.
  The first prong of the guidance I described on disclosure of crypto 
assets is critical to providing transparency for investors and the 
public on volatile crypto assets.
  This kind of transparency helps prevent the kind of fraud and 
mishandling of crypto assets that led to the collapse of major crypto 
companies like FTX. In fact, this disclosure guidance has been broadly 
supported by industry and advocate stakeholders alike.
  The second prong of SAB 121 advises relevant companies on how to 
record crypto assets on their balance sheets.
  Under the guidance, the amount of the liability should correspond to 
the fair value of the crypto assets they are obligated to safeguard.
  This ensures that the company providing custody services has 
sufficient resources to secure these assets for the users against any 
theft, loss, or other misuse that could result in financial 
consequences.
  The SEC has explained that this guidance is prudent due to the unique 
risks and uncertainties associated with crypto assets.
  The sponsor of this resolution has tried to reason that this bill is 
meant to respond to a narrow concern from largely custody banks, but it 
really has much more far-reaching, negative consequences.
  Specifically, this special interest group has raised concerns that 
the second prong of SAB 121 that I described on accounting mechanisms 
would interact with existing bank capital requirements in a way that 
would absolutely make it cost prohibitive for them to provide custody 
services for crypto assets.
  To be clear, even this special interest group has expressed support 
for the disclosure guidance in SAB 121. They are only concerned about 
how the accounting guidance applies to their balance sheet.
  In fact, a letter sent by the special interest group requests 
``targeted modifications'' to address this concern.
  Mr. Speaker, I include in the Record a letter from the Bank Policy 
Institute, the American Bankers Association, the Financial Services 
Forum, and the Securities Industry and Financial Markets Association.

                                                February 14, 2024.
     Hon. Gary Gensler,
     Chair, U.S. Securities and Exchange Commission, Washington, 
         DC.
       Dear Chair Gensler: The Bank Policy Institute (``BPI''), 
     the American Bankers Association (``ABA''), the Financial 
     Services Forum (``the Forum''), and the Securities Industry 
     and Financial Markets Association (``SIFMA'') (collectively, 
     the ``Associations'') write to request that the Securities 
     and Exchange Commission (``Commission'') consider targeted 
     modifications to Staff Accounting Bulletin No. 121 (``SAB 
     121'') to address recent policy developments and the 
     challenges that SAB 121 has posed for U.S. banking 
     organizations since it was issued on March 31, 2022.
       As the two-year anniversary of the issuance of SAB 121 
     approaches, the Associations believe now would be an 
     appropriate time to examine and discuss the implications of 
     SAB 121 for regulated banking organizations. There have been 
     several relevant developments during this two year period, 
     including the GAO report issued in October, approval of 
     certain Spot Bitcoin ETPs, and the SEC's proposed rule on 
     Safeguarding Advisory Client Assets that would cover the 
     custody of digital assets if finalized as proposed. The 
     Associations believe that SAB 121 can be modified to mitigate 
     the specific challenges identified herein without undermining 
     the stated policy objectives of the Commission to enhance the 
     information received by investors and other users of 
     financial statements.
       The Associations are happy to continue to serve as a 
     resource and work collaboratively with the Commission to 
     provide recommendations that would ensure that investors are 
     provided the requisite disclosures while allowing responsible 
     innovation to occur. The Associations and Commission share 
     the common goals of ensuring the highest levels of investor 
     protection and implementing policies that advance principles 
     of market integrity and financial stability.
       We believe the recommendations set forth in this letter are 
     consistent with those principles and would remove unintended 
     barriers for well-regulated U.S. banking organizations to 
     engage in certain activities. Below we describe the drivers 
     behind this request and suggest targeted modifications to SAB 
     121.


                             I. Background

       Since SAB 121 was issued in 2022, the Associations have 
     articulated their concerns regarding the Bulletin to the 
     Commission both in writing and in meetings with Commission 
     staff. The foremost concern identified and discussed is how 
     the on-balance sheet requirement of SAB 121 negatively 
     impacts U.S. banking organizations and investors due to the 
     associated prudential implications. The Associations have 
     underscored that on-balance sheet treatment will preclude 
     highly regulated banking organizations from providing a 
     custodial solution for digital assets at scale. Moreover, the 
     Associations have highlighted that the on-balance sheet 
     requirement, coupled with the overly-broad definition of 
     ``crypto-asset'' in SAB 121, will have a chilling effect on 
     banking organizations' ability to develop responsible use 
     cases for distributed ledger technology (DLT) more broadly.
       U.S. banking organizations' experience over the past two 
     years has confirmed that SAB 121 has curbed the ability of 
     the Associations' members to develop and bring to market at 
     scale certain digital asset products and services. In 
     comparison, in-scope entities of SAB 121 other than U.S, 
     banking organizations have not suffered the same effects. For 
     example, digital asset custodial services are currently 
     offered by various non-banking organizations, thereby keeping 
     activity outside the prudential perimeter and avoiding the 
     necessary oversight by regulators. Indeed, if regulated 
     banking organizations are effectively precluded from 
     providing digital asset safeguarding services at scale, 
     investors and customers, and ultimately the financial system, 
     will be worse off, with the market limited to custody 
     providers that do not afford their customers the legal and 
     supervisory protections provided by federally-regulated 
     banking organizations. The Associations continue to urge the 
     Commission to work with industry to adopt solutions that 
     could mitigate the described challenges.


    II. Concrete Examples of the Impact of SAB 121 on U.S. Banking 
                             Organizations

       The Associations highlight two specific examples of the 
     negative impact of SAB 121 on banking organizations, 
     investors, and the financial ecosystem:
       (1) Spot Bitcoin ETPs: The Commission recently approved 11 
     Spot Bitcoin ETPs, allowing investors access to this asset 
     class through a regulated product. However, notably absent 
     from those approved products are banking organizations 
     serving as the asset custodian, a role they regularly play 
     for most other ETPs. These ETPs have already experienced 
     billions of dollars in inflows, but it is practically 
     impossible for banks to serve as custodian for those ETPs at 
     scale due to the Tier 1 capital ratio and other reserve and 
     capital requirements that result from SAB 121. This raises 
     important questions about the safety and stability of this 
     ecosystem. We believe that this result could raise 
     concentration risk, as one nonbank entity now serves as the 
     custodian for the majority of these ETPs. That risk can be 
     mitigated if prudentially regulated banking organizations 
     have the same ability to provide custodial services for 
     Commission regulated ETPs as qualified nonbank asset 
     custodians. SAB 121 does not appear to contemplate this type 
     of concentration risk, in part perhaps because Spot Bitcoin 
     ETPs or similar products were not an approved product at the 
     time SAB 121 was issued.
       (2) Use of DLT to record traditional financial assets: 
     Banking organizations are increasingly exploring the use of 
     DLT to record traditional financial assets, such as bonds. 
     The use of DLT has the potential to expedite and automate 
     payment, clearing, reconciliation and settlement services, 
     and multiple central banks outside the United States are 
     partnering with banks to explore the adoption of DLT. 
     However, SAB 121 has proven to be a barrier to banking 
     organizations' ability to meaningfully engage in

[[Page H2952]]

     DLT-based projects due to the breadth of the definition of 
     ``crypto-asset'' in SAB 121: ``a digital asset that is issued 
     and/or transferred using distributed ledger or blockchain 
     technology using cryptographic techniques.'' Under this 
     definition, a traditional financial asset issued or 
     transferred using DLT could be considered a ``crypto asset'' 
     and thus within scope of SAB 121, regardless of the 
     applicable risks. SAB 121 makes no distinction between asset 
     types and use cases, but instead generally states that 
     crypto-assets pose certain technological, legal, and 
     regulatory risks requiring on-balance sheet treatment. 
     However, there are significant differences between a 
     cryptocurrency like Bitcoin that exists on a public, 
     permissionless network versus a traditional financial 
     instrument that is recorded on a blockchain network where 
     access is controlled and transactions can be cancelled, 
     corrected, or amended. The past two years have underscored 
     these differences, as the turmoil in the crypto market has 
     been wholly unrelated to banks' use of permissioned DLT. DLT 
     does not change the underlying nature or risks of traditional 
     assets, nor do they present the risks SAB 121 purports to 
     address, and thus SAB 121's application to those assets 
     should be reconsidered. Clear indication from the Commission 
     that the use of DLT to record or transfer traditional 
     financial assets is consistently outside the scope of SAB 121 
     would alleviate associated challenges.


             III. Proposed Modifications and Clarifications

       The Associations request that the Commission consider the 
     following targeted modifications to SAB 121 to address the 
     above concerns:
       Narrow the definition of ``crypto-assets'' to clarify and 
     confirm the exclusion of certain asset types and use cases. 
     SAB 121 is premised on the risks posed exclusively by 
     cryptocurrencies, and traditional financial assets recorded 
     or transferred using blockchain networks should be excluded 
     because they do not present the same risks as 
     cryptocurrencies; the use of DLT does not change the 
     underlying nature or risk of traditional assets. Moreover, 
     certain exclusions for products wherein the underlying 
     activity relates to the offering of a Commission-approved 
     product should be clarified.
       Exempt banking organizations from on-balance sheet 
     treatment but maintain the disclosure requirements: As 
     described previously, SAB 121 answers three questions, and 
     the Associations' and its members' are primarily concerned 
     with the first question: how an entity should account for its 
     obligations to safeguard crypto-assets (the on-balance sheet 
     treatment). We do not object to the requirements imposed in 
     the answer to the second question (disclosures in Fnancial 
     statements). Exempting banking organizations from the on-
     balance sheet treatment but requiring them to make certain 
     disclosures about their digital activity would mitigate the 
     concerns raised by banking organizations without undermining 
     the goal of SAB 121 to promote disclosures to investors. 
     Balance sheet disclosure may be appropriate where the 
     controls are not adequate to protect investors from the risk 
     of custodied assets, which is not the case for banking 
     organizations that are subject to robust oversight from the 
     federal banking agencies. The required disclosures in the 
     answer to the second question are broad and may include 
     disclosures in the description of business, risk factors, and 
     management's discussion and analysis of financial condition 
     and results of operation, and such information will still 
     ``enhance the information received by investors and other 
     users of financial statements about these risks, thereby 
     assisting them in making investment and other capital 
     allocation decisions.''


                             IV. Conclusion

       The Associations and their members appreciate your 
     attention to the issues raised in this letter. Given the 
     upcoming two-year anniversary of the issuance of SAB 121, 
     certain policy developments, the experience of U.S. banking 
     organizations, and the evolution in technology since the 
     guidance was first issued, we believe it is an appropriate 
     time to reflect on the intended goals of SAB 121. We request 
     a meeting with you and Commission staff to discuss the issues 
     and proposed modifications set forth above.
       We appreciate the Commission's attention to this important 
     topic and look forward to engaging with you further.
           Respectfully submitted,
     Bank Policy Institute,
     American Bankers Association,
     Financial Services Forum,
     Securities Industry and Financial Markets Association.

  Ms. WATERS. Mr. Speaker, this bill does far more than implement 
targeted modifications, as this letter proposes.
  This CRA resolution would overturn all of SAB 121, not just the part 
that this special interest group has complained about.
  Mr. Speaker, I am curious whether my colleagues on the other side of 
the aisle have actually read this letter from the special interest 
group that they are trying to pander to or whether they are bothered to 
consult the largest custody bank in the United States, the Bank of New 
York Mellon, which holds in custody more than $45 trillion in customer 
assets because they told me that they do not want this CRA and did not 
push for it in any way because they share our concerns about the bill 
being overly broad.

                              {time}  1230

  The consequences of using a CRA, rather than a more narrowly tailored 
bill, go beyond simply overturning SAB 121 entirely when the 
aforementioned concerns from special interests only have to do with one 
little piece of it.
  If this resolution is passed, the SEC would be prohibited from 
issuing any guidance in the future that is substantially similar to 
this one, including disclosure guidance on this issue. This means that 
the SEC would not be able to simply turn around and narrowly address 
this one little concern while preserving the rest of the guidance. It 
also means that while the crypto industry clamors for the SEC to 
provide for clarity, this resolution would tie the SEC's hands, making 
it harder for them to provide the clarity that the industry purportedly 
wants.
  I am further concerned that if this resolution is passed, industry 
and investors alike will no longer be able to receive timely guidance 
from the SEC staff, as this resolution is also intended to be a 
warning. Passing this resolution would have broad and negative 
consequences for all public companies and their investors, with 
implications for the entire securities market, not just crypto.
  The SEC has issued numerous staff accounting bulletins. The one being 
repealed today is No. 121, which has helped companies understand how 
SEC rules apply in specific situations.
  If the SEC were to pull back in this regard, it would be particularly 
harmful to smaller companies with less resources dedicated to 
compliance and could result in more enforcement actions as they 
struggle to understand how to best comply with SEC rules.
  Chairman McHenry and I have worked well together to find common 
ground on crypto issues like stablecoins. However, instead of finding 
ways to work together, Republicans are recklessly pushing this harmful, 
partisan resolution.
  Let us not forget, the SEC is our cop on the block and should be 
supported because they protect our investors.
  Mr. Speaker, I urge my colleagues to oppose this bill, and I reserve 
the balance of my time.
  Mr. McHENRY. Mr. Speaker, I include in the Record the Government 
Accountability Office's October 31, 2023, decision on the 
``Applicability of the Congressional Review Act to Staff Accounting 
Bulletin No. 121,'' which can be found online at: https://www.gao.gov/
assets/870/862501.pdf.
  The decision makes clear that the accusations that the ranking member 
is making about how broad this is are simply not the case. It is a very 
targeted removal of the staff accounting bulletin that broadly affects 
digital assets, not one bank.
  Mr. Speaker, I yield 3 minutes to the gentleman from Nebraska (Mr. 
Flood), the sponsor of the resolution and a leader on innovation on the 
Financial Services Committee and broader policy.
  Mr. FLOOD. Mr. Speaker, I thank Chairman McHenry for yielding.
  I am pleased to speak in support of my bipartisan resolution, H.J. 
Res. 109, a Congressional Review Act resolution for the SEC's Staff 
Accounting Bulletin No. 121, or SAB 121 for short.
  I thank Congressman Nickel and Senator Lummis for working with me on 
this resolution and for the chairman's leadership in getting this to 
the floor.
  This is something of a complicated issue, as you have heard today, so 
I will break it down into a few different components.
  First, I will begin by explaining what a staff accounting bulletin 
is. Staff accounting bulletins are technical accounting guidance for 
public entities. They are typically noncontroversial in nature and, 
importantly for this debate, are not rules. Guidance is not supposed to 
dictate a major change in policy. That is what our notice-and-comment 
rulemaking process is for.
  This specific bulletin effectively requires banks to put digital 
assets held in custody on their balance sheet. Simply put, that is not 
how custody usually works.

[[Page H2953]]

  As a Federal Reserve Chairman once said: ``Custody assets are off 
balance sheet, always have been.''
  This bulletin upends custodial practice for banks, and it effectively 
keeps banks out of this market entirely. That is not good for consumers 
or investors.
  Next, let's talk about the process, as the chairman has already 
mentioned. There were two major process fouls by the SEC in issuing SAB 
121.
  Number one, the SEC is not a bank regulator, and SAB 121 affects a 
core banking activity: custody. Yet, the SEC issued this bulletin 
without even talking to the regulators first. Think about that. The SEC 
issued this without even talking to the prudential regulators. That is 
an incredible oversight, particularly given the bulletin's unusual 
treatment of custodial assets.
  Number two, the nonpartisan Government Accountability Office 
determined that this bulletin is effectively a rule. In other words, 
the SEC got caught trying to circumvent the APA and the due diligence 
requirements that come with it.
  Now, let's talk about solutions. The easiest way to fix this problem 
is for the SEC to simply rescind the bulletin themselves and work with 
the prudential regulators on an alternate solution.
  Despite the fact that this bulletin was issued through a faulty 
process and despite the negative ramifications of keeping banks from 
taking custody of retail investor assets, the SEC has been unwilling to 
have any conversation about making changes.
  That leaves us with no choice. Congress needs to act through the 
Congressional Review Act to rescind SAB 121.
  Finally, let me briefly address an argument that Ranking Member 
Waters and some of my Democratic colleagues have made on this issue. I 
have heard this argument that the CRA should not be applied to an 
accounting bulletin, but let's contemplate the alternative. What are 
the implications if we fail to pass this resolution?

  This is an instance where the nonpartisan GAO outright said the SEC 
circumvented the proper regulatory process.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. McHENRY. Mr. Speaker, I yield an additional 1 minute to the 
gentleman from Nebraska.
  Mr. FLOOD. Mr. Speaker, think about why the Congressional Review Act 
was passed in the first place: to give Congress the ability to check a 
regulator that has gone astray. If we don't pass this resolution, we 
are effectively giving the green light to our regulators to bypass the 
APA rulemaking process with impunity.
  This isn't just about the SEC or bank custody. This is about 
providing a necessary check to executive branch power. Regardless of 
your feelings on the banking policy or the SEC, I urge my colleagues to 
support this resolution for the sake of upholding the authority of the 
institution we serve in.
  Mr. Speaker, I include in the Record four letters.
  Number one is a letter dated April 27, 2023, sent by Fed Vice Chair 
Michael Barr to Senator Lummis, discussing the impact of SAB 121 on 
Fed-regulated financial institutions.
  Number two is a letter dated April 18, 2023, sent by FDIC Chairman 
Gruenberg to Chairman McHenry and Senator Lummis, in response to their 
March 2, 2023, letter.
  Number three is a letter dated February 28, 2024, sent by the 
Conference of State Bank Supervisors to Chairman McHenry and Ranking 
Member Waters, outlining the unintended effects SAB 121 could pose on 
consumers and markets.
                                         Board of Governors of the


                                       Federal Reserve System,

                                   Washington, DC, April 27, 2023.
     Hon. Cynthia M. Lummis,
     U.S. Senate,
     Washington, DC.
       Dear Senator: Thank you for your letter dated March 2, 
     2023, regarding the Securities and Exchange Commission (SEC) 
     Staff Accounting Bulletin 121 (``SAB 121'') published on 
     April 11, 2022.
       As you know, the Federal Reserve is not responsible for the 
     general accounting policy for public companies and, as such, 
     Federal Reserve staff were not consulted by the SEC regarding 
     the development and issuance of SAB 121. For accounting and 
     reporting purposes under U.S. generally accepted accounting 
     principles (GAAP), assets held in custody are generally not 
     recognized on the custodian's balance sheet--as the custodian 
     does not control the assets--and we defer to the SEC on these 
     matters. However, I would note that state member banks may 
     provide safekeeping services, in a custodial capacity, for 
     crypto-assets if conducted in a safe and sound manner and in 
     compliance with consumer, anti-money laundering, and anti-
     terrorist financing laws.
       By law, regulatory reports and statements required to be 
     filed with Federal banking agencies by all insured depository 
     institutions must be uniform and consistent with U.S. GAAP. 
     In light of SAB 121, the Federal Financial Institutions 
     Examination Council (FFIEC) issued supplemental instructions 
     to the Call Report related to SAB 121. The supplemental 
     instructions state that an institution that determines that 
     it is appropriate for it to apply SAB 121 for SEC or other 
     financial reporting purposes should complete its Call Report 
     consistent with the classification determination made for SEC 
     or other financial reporting purposes. Institutions are 
     encouraged to consult with SEC staff on the scope and 
     applicability of SAB 121.
       The Basel Committee's prudential treatment of crypto-asset 
     exposures applies to various types of exposures to banks, 
     such as exposures held as securities on balance sheet or 
     through derivatives. However, the Basel standard does not 
     generally apply to custodial assets.
       The Federal Reserve continues to take a careful and 
     cautious approach related to current or proposed crypto-
     asset-related activities at each banking organization and 
     will continue to ensure that legally permissible activities 
     are conducted in a manner that is safe and sound, and in 
     compliance with applicable laws and regulations, including 
     those designed to protect consumers.
           Sincerely,
     Michael S. Barr.
                                  ____

                                                   Federal Deposit


                                        Insurance Corporation,

                                   Washington, DC, April 18, 2023.
     Hon. Cynthia M. Lummis,
     Committee on Banking, Housing, and Urban Affairs, U.S. 
         Senate, Washington, DC.
     Hon. Patrick McHenry,
     Chairman, Committee on Financial Services,
     House of Representatives, Washington, DC.
       Dear Senator Lummis and Chairman McHenry: Thank you for 
     your letter of March 2, 2023, to the Federal Deposit 
     Insurance Corporation (FDIC) regarding the accounting and 
     regulatory capital implications of the Securities and 
     Exchange Commission (SEC) Staff Accounting Bulletin 121 (SAB 
     121).
       FDIC staff was not consulted by the SEC before the issuance 
     of SAB 121 and has not been advised of any plans by the SEC 
     to modify or withdraw SAB 121. By law, regulatory reports and 
     statements required to be filed with Federal banking agencies 
     by all insured depository institutions must be uniform and 
     prepared in a manner that is no less stringent than U.S. 
     generally accepted accounting principles (GAAP). In 
     accordance with U.S. GAAP, assets held in custody are 
     generally not recognized on the custodian's balance sheet, 
     because custodial assets provide no economic benefit to the 
     custodian and the custodian does not control the assets.
       Beginning in June 2022, the Federal Financial Institutions 
     Examination Council, of which the FDIC is a member, issued 
     Supplemental Instructions for the Consolidated Reports of 
     Condition and Income (Call Report). Those instructions state: 
     ``An institution that determines that it is appropriate for 
     it to apply SAB 121 for SEC or other financial reporting 
     purposes should complete its Call Report consistent with the 
     classification determination made for SEC or other financial 
     reporting purposes.'' The FDIC encourages institutions to 
     consult with SEC staff on the scope and applicability of SAB 
     121. Reporting custodial assets on-balance sheet in 
     accordance with SAB 121 would be no less stringent than U.S. 
     GAAP.
       The Basel Committee on Banking Supervision (BCBS) published 
     its final standard on the prudential treatment of crypto-
     asset exposures in December 2022. The BCBS standard outlines 
     that consistent with the leverage ratio standard, crypto-
     assets are included in the leverage ratio exposure measure 
     according to their value for financial reporting purposes, 
     based on applicable accounting treatment for exposures that 
     have similar characteristics. The standard states that 
     crypto-asset exposures include on- or off-balance sheet 
     amounts that give rise to credit, market, operational and/or 
     liquidity risks. Certain parts of the standards, such as 
     those related to operational risk, are also applicable to 
     banks' crypto-asset activities. The FDIC does not view the 
     BCBS standard as being in conflict with the SEC's SAB 121, 
     although the agency does acknowledge that the SEC's SAB 121 
     would require institutions to hold capital against custodied 
     crypto-assets.
       The FDIC continues to actively monitor activities 
     associated with digital asset by regulated banking 
     organizations that includes digital asset custodial 
     activities. The FDIC will continue to ensure that legally 
     permissible activities are conducted in a safe and sound 
     manner and in compliance with applicable laws and 
     regulations, including those designed to protect consumers.
       Your interest in this matter is appreciated. If you have 
     additional comments or questions, please contact me or Andy 
     Jiminez, Director, Office of Legislative Affairs.
           Sincerely,
                                              Martin J. Gruenberg.

[[Page H2954]]

     
                                  ____
                                                         CSBS,

                                Washington, DC, February 28, 2024.
     Hon. Patrick McHenry,
     Chairman, House Financial Services Committee, Washington, DC.
     Hon. Maxine Waters,
     Ranking Member, House Financial Services Committee, 
         Washington, DC.
       Chairman McHenry and Ranking Member Waters: On behalf of 
     the Conference of State Bank Supervisors, I write to relay 
     our concerns with the U.S. Securities and Exchange 
     Commission's (SEC) Staff Accounting Bulletin 121 (``SAB 
     121,'' or ``the Bulletin''). The Bulletin, issued without 
     public consultation, unilaterally upends traditional 
     custodial accounting obligations. As written, SAB 121 could 
     lead to significant downstream effects for custodial firms 
     subject to prudential regulation.
       State regulators strongly support appropriate customer 
     protections and a safe and sound financial system. Further, 
     we appreciate the SEC's effort to provide guidance concerning 
     novel activities such as custodial services for ``crypto-
     assets.'' However, decisions with wide-ranging implications 
     across the banking sector should be made in consultation with 
     prudential regulators at both the state and federal level and 
     only after an opportunity for public notice-and-comment. As 
     the Government Accountability Office (GAO) ruled in October 
     2023, SAB 121 qualifies as a rule under the Administrative 
     Procedure Act (APA) and, as such, should have been made 
     available for public comment.
       While custodial activities may have once elicited images of 
     only safe deposit boxes holding valuable physical objects, 
     today's banks hold a variety of both physical and electronic 
     assets. More recently, bank customers have been increasingly 
     interested in banks' ability to custody crypto-assets, 
     including cryptographic keys. While the nature of the 
     underlying assets may change and prudential risk management 
     requirements may vary from asset to asset, the accounting and 
     regulatory principles applicable to such custodial assets 
     should be consistent. In unilaterally departing from well-
     established accounting principles for safeguarding custodial 
     crypto-assets, SAB 121 ignores existing regulatory frameworks 
     in place to ensure custodial activity is conducted in a safe 
     and sound manner.
       Failure to take public comment or consult with other 
     regulators on a cross-jurisdictional issue like this could 
     result in substantial unintended consequences. Two areas of 
     potential side effects from this opaque rulemaking include:
       Potential Asset Concentration. The Bulletin requires on-
     balance sheet accounting of crypto-assets under custody, 
     which is a significant departure from the treatment of other 
     assets held under custody. Due to the prudential regulatory 
     implications of on-balance sheet accounting, this would 
     likely require custodial institutions to raise significant 
     funds to maintain adequate leverage ratios--a step many 
     industry participants have indicated would be prohibitive to 
     providing these custodial services for customers. Not only is 
     this model inconsistent with the principle that similar 
     activities should be regulated in a similar manner, but it 
     could also result in an unnecessary and potentially risky 
     concentration of custodial assets outside of prudentially 
     regulated institutions.
       Loss of Insolvency Protections for Customers. Applying on-
     balance sheet treatment for crypto-assets may inappropriately 
     subject customer assets to creditors' claims in the event of 
     the insolvency of an institution offering custody products 
     and services. In a traditional bankruptcy proceeding, assets 
     accounted for on-balance sheet are typically subject to 
     creditor claims. Conversely, assets held in custody for the 
     benefit of customers are considered accounted for off-balance 
     sheet--and thus protected in bankruptcy--because they remain 
     the assets of the customer. Requiring custodied crypto-assets 
     to be accounted for on-balance sheet risks losing the 
     bankruptcy remote protections of custody services. This is an 
     important distinction from the treatment for a broker-dealer 
     that would be subject to a different form of bankruptcy under 
     the Securities Investor Protection Act.
       These are only two unintended side effects that SAB 121 
     could impose on markets and consumers in an evolving 
     technological environment.
       History repeatedly demonstrates the shortcomings of 
     rulemaking in a vacuum. Without significant consultation with 
     peer regulators and comments from the broader public, these 
     types of missteps are all too common, particularly with new 
     and innovative technologies. We support robust consumer and 
     market protections in this growing and evolving asset class 
     and stand ready to provide Congress and our federal 
     regulatory partners with our experience and expertise. 
     However, given the lack of adequate consultation and 
     opportunity for public comment, and the potential for 
     significant detrimental effects, we have significant concerns 
     with SAB 121.
           Sincerely,
                                                  Brandon Milhorn,
                                                President and CEO.

  Mr. FLOOD. Mr. Speaker, number four is a letter dated February 29, 
2024, sent by the American Bankers Association to Chairman McHenry and 
Ranking Member Waters, expressing support for H.J. Res. 109.

                                 American Bankers Association,

                                Washington, DC, February 29, 2024.
     Re Providing for congressional disapproval under chapter 8 of 
         title 5, United States Code, of the rule submitted by the 
         Securities and Exchange Commission relating to ``Staff 
         Accounting'' Bulletin No. 121'' (H.J. Res. 109).

     Hon. Patrick McHenry,
     Chairman, Committee on Financial Services,
     House of Representatives, Washington, DC.
     Hon. Maxine Waters,
     Ranking Member, Committee on Financial Services, House of 
         Representatives, Washington, DC.
       Dear Chairman McHenry and Ranking Member Waters: The 
     American Bankers Association (ABA) welcomes and supports H.J. 
     Res. 109, the Congressional Review Act resolution of 
     disapproval for the Securities and Exchange Commission 
     ``Staff Accounting Bulletin 121.'' which was recently 
     introduced by Reps. Mike and Flood (R-NE) and Wiley Nickel 
     (D-NC).


 Adverse Impact of SAB 121 on Bank Digital Asset Products and Services

       In March 2022, the Securities and Exchange Commission (SEC) 
     released Staff Accounting Bulletin 121 (SAB 121) to address 
     perceived risks to publicly traded companies that safeguard 
     crypto assets for their customers. Under SAB 121, an entity 
     responsible for safeguarding cryptocurrency assets for 
     platform users must present a liability on its balance sheet 
     at fair value to reflect that obligation, as well as a 
     corresponding asset. SAB 121 is a departure from the banking 
     industry's historical practice of treating custody assets 
     off-balance sheet, and this accounting treatment effectively 
     precludes banks from offering digital asset custody at scale 
     since placing the value of client assets on balance sheet 
     will impact prudential requirements such as capital, 
     liquidity, and other mandates.
       On February 14, 2024, ABA joined with several other 
     financial trades in a joint letter to the SEC. In the letter, 
     we noted that U.S. banking organizations' experience over the 
     past two years with SAB 121 shows that it has curbed the 
     ability of our members to develop and bring to market at 
     scale certain digital asset products and services. We gave 
     two concrete examples:
       (1) Spot Bitcoin ETPs
       The Commission recently approved Spot Bitcoin Exchange 
     Traded Products (ETPs), allowing investors access to this 
     asset class through a regulated product. However, notably 
     absent from those approved products are banking organizations 
     serving as the asset custodian, a role they regularly play 
     for most other ETPs. These ETPs have already experienced 
     billions of dollars in inflows, but it is practically 
     impossible for banks to serve as custodian for those ETPs at 
     scale due to the Tier 1 capital ratio and other reserve and 
     capital requirements that result from SAB 121. This raises 
     important questions about the safety and stability of this 
     ecosystem.
       We believe that this result could raise concentration risk, 
     as one nonbank entity now serves as the custodian for the 
     majority of these ETPs. That risk can be mitigated if 
     prudentially regulated banking organizations have the same 
     ability to provide custodial services for Commission 
     regulated ETPs as qualified nonbank asset custodians. SAB 121 
     does not appear to contemplate this type of concentration 
     risk, in part perhaps because Spot Bitcoin ETPs or similar 
     products were not an approved product at the time SAB 121 was 
     issued.
       (2) Use of DLT to record traditional financial assets
       Banking organizations are increasingly exploring the use of 
     Distributed Ledger Technology (DLT) to record traditional 
     financial assets, such as bonds. The use of DLT has the 
     potential to expedite and automate payment, clearing, 
     reconciliation and settlement services, and multiple central 
     banks outside the United States are partnering with banks to 
     explore the adoption of DLT. However, SAB 121 has proven to 
     be a barrier to banking organizations' ability to 
     meaningfully engage in DLT-based projects due to the breadth 
     of the definition of ``crypto-asset'' in SAB 121: ``a digital 
     asset that is issued and/or transferred using distributed 
     ledger or blockchain technology using cryptographic 
     techniques.''
       Under this definition, a traditional financial asset issued 
     or transferred using DLT could be considered a ``crypto 
     asset'' and thus within scope of SAB 121, regardless of the 
     applicable risks. SAB 121 makes no distinction between asset 
     types and use cases, but instead generally states that 
     crypto-assets pose certain technological, legal, and 
     regulatory risks requiring on-balance sheet treatment. 
     However, there are significant differences between a 
     cryptocurrency like Bitcoin that exists on a public, 
     permissionless network versus a traditional financial 
     instrument that is recorded on a blockchain network where 
     access is controlled and transactions can be cancelled, 
     corrected, or amended.
       The past two years have underscored these differences, as 
     the turmoil in the crypto market has been wholly unrelated to 
     banks' use of permissioned DLT. DLT does not change the 
     underlying nature or risks of traditional assets, nor do they 
     present the risks SAB 121 purports to address, and thus SAB 
     121's application to those assets should be reconsidered. 
     Clear indication from the Commission that the use of DLT to 
     record or transfer traditional financial assets is 
     consistently outside the scope of SAB 121 would alleviate 
     associated challenges.
       In the February 14 letter, we made several recommendations 
     for changes to SAB 121

[[Page H2955]]

     that would mitigate the specific challenges identified above 
     without undermining the stated policy objectives of the SEC 
     to enhance the information received by investors and other 
     users of financial statements. We also asked for a meeting to 
     discuss those changes, but as yet have not had a response 
     from the SEC.


                   Adverse Consequences for Consumers

       Banks have long provided safe and well-regulated custody 
     services to investors for securities and other assets. 
     However, the implications of SAB 121 mean few banks are 
     currently offering custody services for digital assets, 
     leaving consumers with few options for a safe, well-regulated 
     custody service for digital assets.
       In fact, many have turned to non-bank market entrants that 
     are not subject to prudential regulation and examination and 
     are not subject to robust capital and liquidity requirements. 
     This unregulated activity can expose consumers and 
     counterparties to significant harm.


                               Conclusion

       We applaud Representatives Flood and Nickel for their 
     leadership on this important issue. The SEC's Staff 
     Accounting Bulletin 121 represents a significant departure 
     from longstanding accounting treatment for custodied assets 
     and threatens the banking industry's ability to provide its 
     customers with safe and sound custody of digital assets, 
     Limiting banks' ability to offer these services leaves 
     consumers with few well-regulated, trusted options for their 
     digital asset portfolios and ultimately exposes them to risk.
       We encourage you and your membership to favorably report 
     this resolution out of the Committee. We would be pleased to 
     meet with you and your staff to discuss how Staff Accounting 
     Bulletin 121 inhibits consumer access to safe, sounds access 
     to digital asset custody services.
           Sincerely,

                                               Kirsten Sutton,

                                         Executive Vice President,
                                     American Bankers Association.

  Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.
  This is my response to the gentleman from Nebraska. My Republican 
colleagues have claimed that the SEC failed to consult with prudential 
regulators on SAB 121, but if this resolution is passed, the SEC will 
effectively be barred from consulting with prudential regulators in 
order to issue revised guidance on this matter.
  Again, the plain consequences of this bill do not match the purported 
goals of the bill's sponsor and supporters. If Republicans wanted the 
SEC to consult with prudential regulators and reissue modified 
guidance, they should do that. This bill does the opposite. It actually 
prevents the SEC from consulting with prudential regulators in order to 
reissue modified guidance.
  Mr. Speaker, I yield 5 minutes to the gentleman from California (Mr. 
Sherman), who is also the ranking member of the Subcommittee on Capital 
Markets.
  Mr. SHERMAN. Mr. Speaker, the crypto industry comes before our 
committee almost every week saying: We want clarity. Then the SEC 
provides the clarity. Now, the friends of crypto are here to abolish 
the clarity, to not only take away release 121, which requires that the 
custodians of crypto indicate that on the balance sheet, but to prevent 
the SEC from issuing a revised version of 121 that could call for that 
same disclosure to be made in footnotes.
  It is very clear to me, as co-chair of the bipartisan CPA Caucus, 
that the financial statements must reflect the incredible risk that 
banks take when they become custodians of billions and hundreds of 
billions of dollars, supposedly, worth of crypto.
  Now, why the uniqueness of crypto? We have seen Sam Bankman-Fried. He 
was the face of crypto. He is now facing only a quarter century in 
jail, which seems rather light. The crypto industry would tell us that 
Sam Bankman-Fried was just a single snake in the crypto Garden of Eden. 
The fact is, we have learned since Sam Bankman-Fried's indictments that 
crypto is a garden of snakes. It is uniquely problematic. Why is that? 
Because crypto's whole purpose is to facilitate evading American law 
and to help criminals. Who does it attract? It attracts criminals.
  What is the comparative advantage that crypto has as it attempts to 
become a currency and partially displace the dollar and the euro? Is it 
more stable? Certainly not. Is it more useful to buy something? You can 
go to Rayburn and buy a sandwich for $1--well, okay, $8, but you can't 
buy a sandwich anywhere in this complex for a bitcoin. It is not a 
better medium of exchange. It is not a better measure of value. What 
advantage does it have? It is secret.
  Now, the best way to have their secrecy is to have the iceberg above 
the water be available and visible and then to have under the water 
seven-eighths of the crypto subject to being hidden from the know-your-
customer and anti-money-laundering laws.
  So how can the crypto compete with the dollar, aspire to become a 
currency, and compete with the best currency in the world? By tapping 
into the markets that don't want to be surveilled by the U.S. 
Government. What are those? Obviously, the sanctions evaders, the drug 
dealers, and the human traffickers, but that is not a big enough market 
for crypto. They want the tax evasion market.
  The IRS Commissioner under Donald Trump testified that we are losing 
a trillion dollars in revenue. That means that those who are cheating 
on taxes, almost all at the high end of the spectrum, have to hide $3 
trillion of income each and every year. That is $30 trillion of hidden 
income every decade. They can't do it with U.S. dollars, so crypto is 
designed to fill that need.
  Now, if you think it will be successful in doing that and you want to 
bet against America and facilitate the undermining of American laws 
while perhaps making a profit, you can buy crypto, but it is an asset 
whose very nature creates an additional risk. That risk needs to be 
shown in the financial statements of the custodian. This resolution 
would prevent the SEC from causing that to be disclosed either on the 
balance sheet or in the footnotes.

                              {time}  1245

  If you doubt what the purpose is of crypto, then look at their latest 
invention: the mixer.
  What is the mixer?
  It is designed to mix up law enforcement. It is a facility available 
to every crypto owner to disguise their transactions and to hide from 
American law enforcement.
  Not only that, of course, crypto aspires and claims that they will 
partially displace the dollar as the reserve currency. If it does that, 
that will be a tremendous decline in America's power in the world and 
the American economy.
  So I see no reason for us to have rules that hide this risk from the 
shareholders of the custodian.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Ms. WATERS. Mr. Speaker, I yield an additional 1 minute to the 
gentleman from California.
  Mr. SHERMAN. I see no reason for us to hide from those who are 
looking at bank balance sheets the unique risk that they take in order 
to facilitate a crypto ecosystem whose sole purpose and whose strategy 
is to defeat the American Government whether it tries to collect taxes 
or enforce our sanctions.
  Mr. Speaker, if you have any doubt, look at what the proponents, the 
visionaries, behind crypto say. They say that they are innovative. They 
are trying to innovate a way to make sure that America cannot enforce 
its sanctions, cannot deal with drug dealers, cannot enforce its taxes, 
and, oh, by the way, particularly useful to Sam Bankman-Fried, cannot 
enforce its bankruptcy laws.
  Mr. McHENRY. Mr. Speaker, I would say to my colleagues that if they 
want to fix the Sam Bankman-Fried FTX fraud and their ability to do 
that again, then you need to pass the bill that we produced out of 
committee that regulates crypto and provides regulatory agencies power.
  Mr. Speaker, I yield 1 minute to the gentleman from Oklahoma (Mr. 
Lucas), who is the chairman of the Science Committee and a great leader 
on the Financial Services Committee.
  Mr. LUCAS. Mr. Speaker, I thank the chairman for yielding.
  Mr. Speaker, I support this bipartisan CRA to overturn the SEC's 
Staff Accounting Bulletin 121.
  SAB 121 has removed a bank's ability to offer custodial services for 
digital assets and has prevented banks from exploring the use of 
distributed ledger technologies.
  The SEC issued SAB 121 unilaterally, outside the rulemaking process, 
and without the consultation of the banking regulators.
  This policy is not for the SEC to decide, and certainly not for the 
SEC to

[[Page H2956]]

dictate through a broad interpretation of accounting practices.
  The cost of and the availability of capital is dependent on the U.S. 
banking system's ability to adapt to new technologies and to compete in 
offering innovative products and services. SAB 121 has put up barriers 
to that essential responsibility.
  This CRA is an important correction to the SEC's misstep. I thank 
Congressman Flood and Congressman Nickel for leading this effort.
  Ms. WATERS. Mr. Speaker, I include in the Record a Statement of 
Administration Policy from the White House.

                   Statement of Administration Policy


H.J. Res. 109--Congressional Disapproval of ``Staff Accounting Bulletin 
No. 121'' Issued by the Securities and Exchange Commission--Rep. Flood, 
                       R-NE, and four cosponsors

       The Administration strongly opposes passage of H.J. Res. 
     109, which would disrupt the Securities and Exchange 
     Commission's (SEC) work to protect investors in crypto-asset 
     markets and to safeguard the broader financial system. H.J. 
     Res. 109 would invalidate SEC Staff Accounting Bulletin 121 
     (SAB 121), which reflects considered SEC staff views 
     regarding the accounting obligations of certain firms that 
     safeguard crypto-assets. Moreover, as explained in staff's 
     accompanying release, SAB 121 was issued in response to 
     demonstrated technological, legal, and regulatory risks that 
     have caused substantial losses to consumers. By virtue of 
     invoking the Congressional Review Act, it could also 
     inappropriately constrain the SEC's ability to ensure 
     approriate guardrails and address future issues related to 
     crypto-assets including financial stability. Limiting the 
     SEC's ability to maintain a comprehensive and effective 
     financial regulatory framework for crypto-assets would 
     introduce substantial financial instability and market 
     uncertainty.
       If the President were presented with H.J. Res. 109, he 
     would veto it.

  Ms. WATERS. The President states that the resolution before us would 
``disrupt the Securities and Exchange Commission's work to protect 
investors in crypto-asset markets and to safeguard the broader 
financial system.''
  This statement not only explains how terrible this resolution is, but 
that the President of the United States of America will veto it.
  Mr. Speaker, I yield 3 minutes to the gentleman from Massachusetts 
(Mr. Lynch) who is also the ranking member of the Subcommittee on 
Digital Assets, Financial Technology and Inclusion.
  Mr. LYNCH. Mr. Speaker, I rise in strong opposition to H.J. Res. 109.
  This misguided resolution would eliminate the Securities and Exchange 
Commission's Staff Accounting Bulletin 121. This nonbinding, 
interpretive guidance advises companies that are holding crypto assets 
in custody for customers to record those assets as liabilities on their 
balance sheets. It also recommends that companies disclose the nature 
and the amount of their crypto-asset holdings. Simply put, it advises 
caution and transparency regarding crypto because it is so volatile.
  The disapproval of SAB 121 would have severe consequences in the U.S. 
financial services industry and be especially dangerous for banks, 
depositors, investors, and consumers. As underscored in the bulletin, 
the safeguarding of crypto assets presents unique technological, 
regulatory, and legal risks that could significantly impact a company's 
financial condition and its operations. For this same reason, the 
bulletin seeks to ensure that investors are informed about these risks 
in making investment and other capital allocation decisions.
  The failure of Silicon Valley Bank, Signature Bank, First Republic 
Bank, and others have shown us that nervous depositors can cause a run 
on bank assets when crypto assets become unstable. They can also move 
money in the blink of an eye, which makes these banks less stable and 
subject to failure.
  With the collapse of FTX, the violation of Federal anti-money 
laundering and sanctions laws by Binance, and legal issues facing 
several other crypto companies, Staff Accounting Bulletin 121 serves to 
protect investors.
  Crypto is now in its 17th year, yet the primary use cases for crypto 
continue to be money laundering, tax avoidance, cybercriminal 
ransomware payments, and terrorist finance.
  Regrettably, crypto has become a truly perfect example of a textbook 
case of an elegant idea that is being continually savaged by an ugly 
gang of facts.
  Regrettably, the Republican leadership's efforts to curtail SEC 
regulation in the crypto sector are now even extending to staff 
bulletins that are simply advisory and designed to publicize staff 
views regarding accounting-related disclosure practices.
  This resolution also undermines the practice of issuing Staff 
Accounting Bulletins for the benefit of small investors and firms that 
may not have the resources to engage directly with the SEC and obtain 
an individual opinion or advice.
  As ranking member of the Digital Assets Subcommittee for the House 
Financial Services Committee, I urge my colleagues to vote ``no.''
  Mr. McHENRY. Mr. Speaker, I yield 3 minutes to the gentleman from 
Kentucky (Mr. Barr), who is the chair of the Subcommittee on Financial 
Institutions and Monetary Policy on the Financial Services Committee.
  Mr. BARR. Mr. Speaker, I thank the chairman for his leadership on 
this issue.
  Mr. Speaker, I stand in front of you today to support my friend and 
colleague from Nebraska (Mr. Flood) and his CRA resolution to nullify 
the SEC's Staff Accounting Bulletin Number 121 which would eviscerate 
financial institutions' ability to provide custodial services for 
digital asset firms.
  In theory, under SAB 121, a bank could custody digital assets. 
However, the conditions set forth by SAB 121 make it impractical for 
any bank. This very fact has been noted by Federal Reserve Board Chair 
Powell who acknowledged it shifts away from traditional custodial 
practices as custodial assets receive off-balance-sheet treatment.
  SAB 121 overturns decades of precedent regarding the accounting 
assets for banks. If a bank decides to custody digital assets and 
adhere to SAB 121, then the on-balance-sheet requirement would have 
significant capital, liquidity, and other prudential consequences. This 
makes it difficult, at best, for regulated institutions to safeguard 
digital assets.
  The fact is that technological, legal, and regulatory risks cited in 
SAB 121 are already addressed by the legal and regulatory framework 
that applies to banks' custodial activities. Yet, SAB 121 did not 
account for that.
  Moreover, and disturbingly, the SEC did not consult with any of the 
prudential regulators before issuing this flawed guidance. 
Unfortunately, the failure to consult the regulators overseeing 
institutions that are largely impacted by an SEC proposal has become 
quite common under Chair Gensler.
  The SEC does not have the expertise to assess the same risks as the 
prudential regulators, and it is not the role of Gary Gensler to 
propose misguided rulemakings and guidance that may have major adverse 
implications to the functioning of our financial institutions, and 
ultimately to the safety and soundness of our financial system.
  Given the implications for financial institutions' ability to 
safeguard assets under this rule and the clear lack of understanding 
regarding their prudential standards and guidance from their primary 
regulators, this rule is fatally flawed.
  The fact of the matter is to the extent there is concern about a lack 
of regulation, if there is concern about a lack of regulatory clarity 
or risk with crypto, then we should not make it impossible, as a 
practical matter, for well-regulated banks to protect Americans who own 
digital assets with custody services.
  Mr. Speaker, if you want to protect customers and if you want to 
protect investors in digital assets, then we shouldn't be pushing 
crypto transactions into less transparent and more opaque, riskier 
offshore places, but that is exactly what SAB 121 would do.
  I have to address this issue. Silicon Valley Bank's failure had to do 
with deposit concentration risk and interest rate mismanagement. It had 
nothing to do with the fact that many of its customers were technology 
firms or worked in the blockchain space. It had nothing to do with 
that. That is a red herring.
  This is why I support Mr. Flood's measure, I support the bipartisan 
work, and I encourage my colleagues to support it as well.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. McHENRY. Mr. Speaker, I yield an additional 30 seconds to the 
gentleman from Kentucky.
  Mr. BARR. Mr. Speaker, I thank the gentleman for yielding.

[[Page H2957]]

  In conclusion, Mr. Speaker, I include in the Record a letter dated 
March 2, 2023, cosigned by Chairman McHenry and Senator Lummis sent to 
the Fed, OCC, FDIC, and NCUA asking them about SAB 121's impact on 
regulated entities, and also asking if they were consulted prior to SAB 
121's issuance.

                                Congress of the United States,

                                    Washington, DC, March 2, 2023.
     Re Prudential Impact of Staff Accounting Bulletin 121.

     Hon. Michael Barr,
     Vice Chair for Supervision, Board of Governors of the Federal 
         Reserve System, Washington, DC.
     Mr. Michael Hsu,
     Acting Comptroller, Office of the Comptroller of the 
         Currency, Washington, DC.
     Hon. Marty Gruenberg,
     Chairman of the Board, Federal Deposit Insurance Corporation, 
         Washington, DC.
     Hon. Todd Harper,
     Chairman of the Board, National Credit Union Administration, 
         Alexandria, VA.
       Dear Vice Chair Barr, Chairman Gruenberg, Chairman Harper, 
     and Mr. Hsu: We write regarding Securities and Exchange 
     Commission (SEC) Staff Accounting Bulletin 121 (``SAB 121'') 
     published on April 11, 2022. SAB 121 was intended to clarify 
     the accounting treatment of digital assets safeguarded by 
     custodians, exchanges, and other platforms engaged in digital 
     asset activities. However, SAB 121 places customer assets at 
     greater risk of loss if a custodian becomes insolvent or 
     enters receivership, violating the SEC's fundamental mission 
     to protect customers.
       Our concern stems from SAB 121's directive that companies 
     recognize a liability and a corresponding offset on their 
     balance sheets, measured at the fair value of the customer 
     custodial digital assets. A recent decision in the Celsius 
     bankruptcy, which classified all Celsius' customers as 
     unsecured creditors, and therefore at the back of the line to 
     recover their assets, highlights the legal risk of 
     effectively forcing customer custodial assets to be placed on 
     balance sheet. Additionally, SAB 121 upends decades of 
     precedent regarding the accounting treatment of custodial 
     assets for banks, credit unions and other regulated financial 
     institutions.
       Federal Reserve Board Chair Powell noted this shift away 
     from traditional custodial practices in testimony before the 
     Senate Banking Committee on June 22, 2022. Typically, 
     custodial assets receive off-balance sheet accounting 
     treatment. This is largely because customers retain ownership 
     of their custodial assets and financial institutions are not 
     permitted to conduct proprietary trading with customer 
     assets. As emphasized in comment letters, SAB 121 ``deviates 
     from existing accounting treatment of safeguarded assets held 
     in a custodial capacity, which does not result in assets or 
     liabilities reported on the custodian's balance sheet.''
       Furthermore, the breadth of the ``digital asset'' 
     definition in SAB 121 covers any ``digital asset that is 
     issued and/or transferred using distributed ledger or 
     blockchain technology using cryptographic techniques.'' The 
     scope of assets covered by this broad definition, whether 
     virtual currency, stablecoins, or even tokenized equities, is 
     unclear. This is concerning because a more nuanced hierarchy 
     for this asset class which considers the opportunities and 
     risks of digital assets with different functions is 
     necessary. For example, the Bank for International 
     Settlements' Prudential Treatment of Crypto Assets framework 
     differentiates between various types of digital assets for 
     bank capital purposes.
       Since SAB 121 purports to require banks, credit unions and 
     other financial institutions to effectively place digital 
     assets on their balance sheets, it would trigger a massive 
     capital charge. This in turn is likely to prevent these 
     prudentially regulated entities from engaging in digital 
     asset custody. To the contrary, we should be encouraging 
     prudentially regulated financial institutions, like banks and 
     credit unions, to provide digital asset services precisely 
     because they are subject to the highest standards of capital, 
     liquidity, recovery and resolution, custody, cyber-security, 
     and risk management.
       In sum, the effect of SAB 121 is to deny millions of 
     Americans access to safe and secure custodial arrangements 
     for digital assets. For these reasons, please respond to the 
     following questions regarding the impact of SAB 121 on banks, 
     credit unions, and other financial institutions:
       (1) Was your agency contacted by the SEC prior to the 
     issuance of SAB 121? If so, please identify the staff members 
     consulted by the SEC and provide copies of written feedback, 
     if any, provided to SEC staff.
       (2) Has the SEC indicated that it will modify or withdraw 
     SAB 121 in light of widespread comments that the Bulletin is 
     flawed?
       (3) What are the legal and supervisory reasons off-balance 
     sheet treatment of custodial assets has historically been the 
     norm for banks and credit unions?
       (4) Has your agency directed banks and other financial 
     institutions within your jurisdiction to comply with the 
     terms of SAB 121 for the purposes of capital adequacy, 
     business plan change approvals, reporting and other 
     supervisory matters? If not, do you plan to do so?
       (5) Does SAB 121 conflict with your agency's input 
     regarding the Basel Committee on Bank Supervision's 
     Prudential Treatment for Crypto Asset exposures, in so far as 
     the definition of ``digital asset'' under SAB 121 also 
     encompasses Group 1a, Group 1b, and Group 2 digital assets 
     under the Prudential Treatment framework?
       (6) Do you agree that the capital charge for banks, credit 
     unions, and other financial institutions under SAB 121 is 
     prohibitive?
       (7) Do you agree that SAB 121 potentially weakens consumer 
     protection by preventing well-regulated banks, credit unions, 
     and other financial institutions from providing custodial 
     services for digital assets?
       We would appreciate a response no later than March 16, 
     2023. Thank you for your attention to this matter.
           Sincerely,
     Sen. Cynthia M. Lummis,
       Senate Banking Committee.
     Rep. Patrick McHenry,
       Chairman, House Financial Services Committee.

  Mr. BARR. Mr. Speaker, I include in the Record a letter dated April 
6, 2023, sent by OCC Acting Comptroller Hsu to Chairman McHenry and 
Senator Lummis in response to their March 2, 2023, letter.

                                         Office of the Comptroller


                                              of the Currency,

                                                    April 6, 2023.
     Hon. Cynthia Lummis,
     Committee on Banking, Housing, and Urban Affairs, U.S. 
         Senate, Washington, DC.
     Hon. Patrick McHenry,
     Chairman, Committee on Financial Services, U.S. House of 
         Representatives, Washington, DC.
       Dear Senator Lummis and Chairman McHenry: Thank you for 
     your letter dated March 2, 2023, concerning the impact of the 
     Securities and Exchange Commission (SEC) Staff Accounting 
     Bulletin Number 121 (SAB 121) on institutions regulated by 
     the Office of the Comptroller of the Currency (OCC).
       The OCC recognizes that the SEC plays an important role in 
     developing financial reporting standards applicable to 
     publicly listed companies in the United States. Federal law 
     (12 U.S.C.1831n) requires all national banks and federal 
     savings associations to follow reporting standards that are 
     no less stringent than U.S. Generally Accepted Accounting 
     Principles (GAAP), regardless of public listing status. We 
     understand that these institutions, in consultation with 
     their auditors, are analyzing the intersection of SAB 121 and 
     GAAP. The OCC is monitoring these discussions.
       Please see responses below to your specific questions.
       (1) Was your agency contacted by the SEC prior to the 
     issuance of SAB 121? If so, please identify the staff members 
     consulted by the SEC and provide copies of written feedback, 
     if any, provided to SEC staff.
       The SEC did not consult with the OCC prior to the issuance 
     of SAB 121.
       (2) Has the SEC indicated that it will modify or withdraw 
     SAB 121 in light of widespread comments that the Bulletin is 
     flawed?
       The OCC has not participated in any communications with the 
     SEC in which the SEC indicated it would modify or withdraw 
     SAB 121.
       (3) What are the legal and supervisory reasons off-balance 
     sheet treatment of custodial assets has historically been the 
     norm for banks and credit unions?
       Section 37(a) of the Federal Deposit Insurance Act (12 
     U.S.C. 183n(a)) requires that the Federal banking agencies 
     prescribe accounting principles for regulatory reporting 
     purposes that are no less stringent than U.S. GAAP. Under 
     U.S. GAAP, custodial assets are generally not reported on the 
     bank's balance sheet provided that client assets held in 
     custody are properly segregated and held separately from the 
     bank's assets
       (4) Has your agency directed banks and other financial 
     institutions within your jurisdiction to comply with the 
     terms of SAB 121 for the purposes of capital adequacy, 
     business plan change approvals, reporting and other 
     supervisory matters? If not, do you plan to do so?
       The OCC worked with the other members of the Federal 
     Financial Institutions Examination Council to provide 
     regulatory reporting instructions to banks that provide for 
     each bank to determine whether it is appropriate to apply SAB 
     121 for financial reporting purposes. If a bank determines 
     that it is appropriate to follow SAB for financial reporting 
     purposes, the bank should also prepare its Consolidated 
     Reports of Condition and Income in the same manner.
       (5) Does SAB 121 conflict with your agency's input 
     regarding the Basel Committee on Bank Supervision's 
     Prudential Treatment for Crypto Asset exposures, in so far as 
     the definition of ``digital asset'' under SAB 121 also 
     encompasses Group 1a, Group 1b, and Group 2 digital assets 
     under the Prudential Treatment framework?
       The Basel Committee on Banking Supervision (BCBS) defines 
     cryptoassets as ``private digital assets that depend on 
     cryptography and distributed ledger technologies (DLT) or 
     similar technologies. Digital assets are a digital 
     representation of value, which can be used for payment or 
     investment purposes or to access a good or service.''
       While the final BCBS cryptoasset standard applies different 
     capital treatments to Group 1 and Group 2 cryptoasset 
     exposures, the standard states that custodial service 
     activities are not considered ``exposures'' for the purposes 
     of the standard.

[[Page H2958]]

       (6) Do you agree that the capital charge for banks, credit 
     unions, and other financial institutions under SAB 121 is 
     prohibitive?
       The OCC expects banks to hold capital commensurate with the 
     nature and extent of the risks of their activities) For 
     national trust banks, OCC Bulletin 2007-21, ``Supervision of 
     National Trust Banks: Revised Guidance: Capital and 
     Liquidity,''provides that the minimum capital is informed by 
     analysis of quantitative and qualitative factors including, 
     but not limited to, financial projections, fixed and variable 
     expenses, the nature of fiduciary products and services being 
     proposed, and discussions with organizers.
       (7) Do you agree that SAB 121 potentially weakens consumer 
     protection by preventing well-regulated banks, credit unions, 
     and other financial institutions from providing custodial 
     services for digital assets?
       The OCC will continue to monitor this issue and work to 
     ensure that national banks and federal savings associations 
     operate in a safe and sound manner, provide fair access to 
     financial services, treat customers fairly, and comply with 
     applicable laws and regulations, including consumer 
     protection laws.
       If you have any questions or need additional information. 
     please do not hesitate to contact me or Carrie Moore, 
     Director, Public Affairs and Congressional Relations.
           Sincerely,
                                                   Michael J. Hsu,
                               Acting Comptroller of the Currency.

  Mr. BARR. Mr. Speaker, I also include in the Record a letter dated 
March 16, 2023, sent by NCUA Chairman Harper in response to Chairman 
McHenry's and Senator Lummis' March 2, 2023, letter.

                                                   National Credit


                                         Union Administration,

                                   Alexandria, VA, March 16, 2023.
     Hon. Patrick McHenry,
     Chairman, U.S. House Committee on Financial Services, U.S. 
         House of Representatives, Washington, DC.
       Dear Chairman McHenry: Thank you for contacting the 
     National Credit Union Administration about the implementation 
     of Staff Accounting Bulletin 121. The increase in consumers 
     and businesses using digital assets, including 
     cryptocurrency, has impacted the financial services industry, 
     which includes both credit unions and banks. It is therefore 
     important to develop a balanced policy approach to address 
     emerging risks to the safety and soundness of federally 
     insured credit unions.
       Your letter requests responses to several questions, which 
     reflect the NCUA's supervisory role over federally insured 
     credit unions. Our responses follow.
       (1) Was your agency contacted by the SEC prior to the 
     issuance of SAB 121? If so, please identify the staff members 
     consulted by the SEC and provide copies of written feedback, 
     if any, provided to SEC staff.
       The NCUA was not contacted.
       (2) Has the SEC indicated that it will modify or withdraw 
     SAB 121 in light of widespread comments that the Bulletin is 
     flawed?
       The NCUA is not aware of the SEC's intent to modify or 
     withdraw SAB 121.
       (3) What are the legal and supervisory reasons off-balance 
     sheet treatment of custodial assets has historically been the 
     norm for banks and credit unions?
       The off-balance sheet treatment of custodial assets is 
     rooted in generally accepted accounting principles, or GAAP 
     for short. The GAAP standard evolved from the concept of the 
     principal agent relationship, where the reporting of an asset 
     belonged to the entity that controlled the asset and 
     ownership rights were not passed to the custodian. As the 
     custodian did not have ownership rights--that is, the ability 
     to buy, sell, or leverage the asset--the custodian did not 
     report those types of assets in its financial statements. The 
     concept is codified in the Accounting Standards Codification 
     Topic 860 Transfers and Servicing, where ``transfers of the 
     custody of financial assets for safekeeping'' is excluded 
     from accounting for transfers and servicing of financial 
     assets.
       (4) Has your agency directed banks and other financial 
     institutions within your jurisdiction to comply with the 
     terms of SAB 121 for the purposes of capital adequacy, 
     business plan change approvals, reporting and other 
     supervisory matters? if not, do you plan to do so?
       The NCUA has not directed credit unions to comply with SAB 
     121 for any purpose. SAB 121 is a requirement of public 
     registrants and does not apply to credit unions, which are 
     cooperatively owned by their members.
       (5) Does SAB 121 conflict with your agency's input 
     regarding the Basel Committee on Bank Supervision's 
     Prudential Treatment for Crypto Asset exposures, in so far as 
     the definition of ``digital asset'' under SAB 121 also 
     encompasses Group 1a, Group 1b, and Group 2 digital assets 
     under the Prudential Treatment framework?
       The NCUA is neither a member of the Basel Committee nor 
     does it provide input on Bank Supervision's Prudential 
     Treatment for Crypto Asset exposures.
       (6) Do you agree that the capital charge for banks, credit 
     unions, and other financial institutions under SAB 121 is 
     prohibitive?
       If SAB 121 is eventually applied to nonpublic entities, it 
     will have implications for assessing the adequacy of an 
     insured credit union's net worth. If a credit union functions 
     as a digital asset custodian and is required to reflect the 
     digital assets held in custody on its balance sheet, the 
     credit union's net worth ratio would be negatively impacted 
     as the institution's assets would increase without a 
     commensurate increase in the net worth.
       (7) Do you agree that SAB 121 potentially weakens consumer 
     protection by preventing well-regulated banks, credit unions, 
     and other financial institutions from providing custodial 
     services for digital assets?
       Prior to the release of SAB 121, the NCUA issued a Letter 
     to Credit Unions on Relationships with Third Parties that 
     Provide Services to Digital Assets. As stated in that letter, 
     the NCUA would not take exception to credit unions partnering 
     with third parties to make digital asset services available 
     to members. That letter also outlines the NCUA's expectations 
     that credit unions conduct adequate due diligence and ensure 
     compliance with all applicable laws and regulations when 
     engaging in any such activity. The NCUA is not able to 
     determine the impact of adopting SAB 121 at publicly traded 
     financial institutions that offer custody services of digital 
     assets and cannot make a broad determination of the impact on 
     consumer protection.
       Thank you for raising this issue with the NCUA. If you have 
     additional questions, please feel free to contact me or have 
     your staff contact Elizabeth Eurgubian in our Office of 
     External Affairs and Communications.
           Sincerely,
                                                   Todd M. Harper,
                                                         Chairman.

  Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, this bill has been opposed by the Biden administration. 
Further, this bill is opposed by the following organizations: Americans 
for Financial Reform, Better Markets, Public Citizen, Consumer 
Federation of America, United States Public Interest Research Group; 
New Jersey Citizen Action, Demand Progress, Institute for Agriculture 
and Trade Policy, Texas Appleseed, 20/20 Vision, and Bank of New York 
Mellon.
  Mr. Speaker, I reserve the balance of my time.
  Mr. McHENRY. Mr. Speaker, I yield 2 minutes to the gentleman from 
Utah (Mr. Curtis).
  Mr. CURTIS. Mr. Speaker, I rise today in favor of H.J. Res. 109 which 
would repeal the SEC's unnecessary regulations on cryptocurrency and 
the banking industry.
  The SEC and its chairman, Gary Gensler, have repeatedly overstepped 
their authority and targeted cryptocurrencies.
  The SEC's latest unnecessary regulation was implemented outside of 
the regular rulemaking process and bypassed established procedures, and 
it shows.
  This rule will limit banks' ability to offer digital assets as part 
of their custodial services. This makes it more challenging for 
Americans to safely engage with digital assets under the advisement of 
their local banks who are able to accurately inform them of risks of 
investments.
  Crypto is a legitimate market used by millions of Americans. Hundreds 
of thousands of those are in my district. Unfortunately, today they 
have been referred to as ``criminals and drug dealers,'' and I take 
offense to that.
  We should be giving investors opportunities to take part in 
cryptocurrencies, not putting up artificial barriers.
  Mr. Speaker, I urge my colleagues to support this resolution and 
repeal the regulation.
  Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, Republicans have echoed calls from the crypto industry 
saying that legislation is needed to provide clarification on how 
securities laws apply to them, but their actions reveal their true 
motivation.
  They don't want clarity; they want broad exemption from securities 
laws.
  Let's look at their actions to date. The first crypto-related bill 
that Republicans marked up was the FIT 21 Act which they claimed was 
responsive to the need for clarity on crypto.
  The only thing clear about this highly convoluted bill is that it 
would provide the crypto industry with broad exemptions from current 
securities.
  Mr. Speaker, I reserve the balance of my time.

                              {time}  1300

  Mr. McHENRY. Mr. Speaker, may I inquire as to how much time is 
remaining.
  The SPEAKER pro tempore. The gentleman from North Carolina has 14 
minutes remaining. The gentlewoman

[[Page H2959]]

from California has 9\1/2\ minutes remaining.
  Mr. McHENRY. Mr. Speaker, I yield 3 minutes to the gentleman from 
Arkansas (Mr. Hill), my friend and chair of the Digital Assets 
Subcommittee and the vice-chair of the Financial Services Committee.
  Mr. HILL. Mr. Speaker, I thank Chairman McHenry and the gentleman 
from Nebraska (Mr. Flood) for this excellent work in this Congressional 
Review Act resolution to roll back the SEC's failure in their Staff 
Accounting Bulletin 121.
  It would reshape the business of custody in this country. This is not 
just about crypto. This is a sweeping rule that the SEC has implemented 
without following the Administrative Procedures Act. The GAO says it is 
a rule. Well, if it is a rule, it needs to go through the 
Administrative Procedures Act and have a comment period and get people 
involved because, as Ranking Member Waters noted, they did not consult 
with the banking regulators, who have the primary role of supervising 
custody in this country.
  A custodian is someone who holds your assets for you, whether it is 
shares of a stock or acres of forest land or a rental house or 10 
bitcoin. Holding reserves against the assets in custody is not standard 
financial services practice.
  This staff accounting bulletin is misguided. It requires that money 
be set aside for that category of assets of digital assets in custody. 
It is part of a broader attack by the Biden administration to treat 
digital assets differently from all other assets.
  That doesn't make any sense to House Republicans. Under Mr. McHenry's 
leadership and Mr. Thompson's leadership of the Ag Committee, we have a 
fit-for-purpose approach that, in fact, directs the SEC and the CFTC 
how to handle digital assets.
  Unfortunately, this accounting bulletin is in the wrong direction. 
That is why we have the Congressional Review Act. That is why we are 
using Article I authority under the Constitution to say this is the 
wrong direction and that we will all come to this House floor and say 
it should be repealed and sent back.
  Mr. Speaker, I would remind my friends on the other side of the 
aisle, senior Biden official Vice Chairman Barr of the fed, Acting 
Comptroller Hsu all testified before our committee that they were not 
consulted by the SEC about this staff accounting bulletin. It is a 
significant change. It is a rule. It should have gone through the 
Administrative Procedures Act and be out for public comment.
  Mr. Speaker, that is why I thank the gentleman from Nebraska (Mr. 
Flood) for leading the charge on this important resolution, and I urge 
adoption.
  Ms. WATERS. Mr. Speaker, the industry, the custody industry, the big 
banks that hold these crypto assets simply asked for a little 
correction, a little clarity, a little information.
  The Republicans are taking advantage of this, and this is the first 
crypto bill that Republicans are bringing to the floor today, and it 
would do what the majority always attempts to do, and this would 
actually reverse SEC guidance that provides clarity on accounting 
standards specifically for crypto assets. Not only that, but it would 
undermine the SEC's ability to provide clarity on crypto in the future.
  That is why the administration sees this bill for what it is and has 
advised us that they would veto it.
  Mr. Speaker, I reserve the balance of my time.
  Mr. McHENRY. Mr. Speaker, I yield 3 minutes to the gentleman from 
Ohio (Mr. Davidson), the chair of the Housing Subcommittee, the vice 
chair of the Digital Assets Subcommittee, and a longtime leader in 
digital innovation and digital assets.
  Mr. DAVIDSON. Mr. Speaker, I thank the chairman for yielding time.
  Mr. Speaker, this accounting bulletin has proven to be a barrier to 
publicly traded banks having an ability to meaningfully engage in 
distributed ledger products due to their overly broad definition of a 
crypto asset. SAB 121 makes no distinction between asset types in use 
cases, but, instead, generally states that crypto assets pose certain 
technological, legal, and regulatory risks, requiring special on-
balance-sheet treatment.
  All other assets, if you want to make a deposit at a bank, they are 
glad to hold custody of the assets, but somehow these assets qualify 
for special treatment.
  Normally, if there was on-balance-sheet treatment, it would also just 
be a clean entry. There wouldn't be a mark to mark it that would 
require not just a balance sheet treatment that would be appropriate 
for a custody of a certain kind of asset, but you would have income 
statement flow throughs and all kinds of other risks.
  Why would a bank need to cover extra risk up to 100 percent of the 
deposit of an asset simply to take custody of the asset? This is a 
special treatment that applies just to these assets, so applying on-
balance-sheet treatment for crypto assets wrongly subjects customer 
assets to creditors' claims in the event there was a failure of a 
custodial institution.
  In a traditional bankruptcy, assets are accounted for on balance 
sheet and are subject to creditor claims. Conversely, assets held in 
custody for customers are accounted for off balance sheet and, thus, 
are protected from creditor claims in bankruptcy because they remain 
the assets of the company.
  We would see this distinction in a company like Fidelity, where the 
assets are off balance sheet, versus a company like Silicon Valley Bank 
when they went bankrupt. The depositors were literally at risk. Why 
would we change the standard with this out-of-jurisdiction rulemaking 
by the SEC?
  Requiring custody crypto assets to be accounted for on balance sheets 
risks losing the bankruptcy protections of custodial services. This is 
an important distinction from the treatment for a broker-dealer that 
would be subject to a different form of bankruptcy under the Securities 
Investor Protection Act. Distributor ledger technology does not change 
the underlying nature of risk of traditional assets, nor do they 
present risks that SAB 121 purports to address.
  Mr. Speaker, I include in the Record three letters: A letter dated 
August 23, 2023, cosigned by Chairman McHenry and Representative Hill, 
sent to the Comptroller General at the Government Accountability 
Office, urging GAO to complete its assessment on whether the 
Congressional Review Act applies to SAB 121; a letter dated February 
14, 2024, cosigned by the Bank Policy Institute, the American Bankers 
Association, the Financial Services Forum, and the Securities Industry 
and Financial Markets Association, sent to the SEC requesting a meeting 
with the SEC Chairman, Gary Gensler, urging him to reconsider SAB 121; 
and, lastly, a bipartisan, bicameral letter dated November 15, 2023, 
cosigned by five Representatives and two Senators, sent to the Federal 
Reserve, the OCC, the FDIC, NCUA, urging the agencies to withhold 
enforcement of SAB 121 in light of GAO's decision.

                                         House of Representatives,


                              Committee on Financial Services,

                                  Washington, DC, August 23, 2023.
     Re SEC Staff Accounting Bulletin No. 121 and the 
         Congressional Review Act

     Hon. Gene Dodaro,
     Comptroller General of the United States Government 
         Accountability Office, Washington, DC.
       Dear Comptroller Dodaro: We write to inquire about the 
     status of the Government Accountability Office (GAO)'s 
     decision regarding the applicability of the Congressional 
     Review Act (CRA) to the Securities and Exchange Commission's 
     (SEC) Staff Accounting Bulletin No. 121 (SAB 121). We are 
     concerned that SAB 121 is not guidance but rather should be 
     considered a major action undertaken by the SEC. This letter 
     underscores the request by Senator Lummis expressing her 
     shared concern about the effect of SAB 121. To date, GAO has 
     not rendered a decision.
       To underscore Senator Lummis' position, SAB 121 should be 
     construed as a rule for purposes of the CRA. SAB 121 is not 
     an interpretive rule. It is not a general statement of 
     policy. Rather SAB 121 is a major policy change that 
     fundamentally impacts the way customer assets under custody 
     are treated for balance sheet purposes. The Bulletin 
     significantly impacts a number of entities within the SEC's 
     purview but also state and nationally chartered banks and 
     trust companies.
       Separately, it is important to note that Congress continues 
     to make progress on legislation establishing a regulatory 
     framework to provide certainty for the digital asset 
     ecosystem. The Committee's work to report out legislation 
     governing both the issuance and use of payment stablecoins as 
     well as the regulation of digital asset intermediaries is 
     consistent with the recommendations made by GAO this past 
     June. This legislative work should not be subverted by 
     unelected bureaucrats through opaque and unaccountable 
     processes such as SAB 121.

[[Page H2960]]

       We encourage you to protect the prerogatives of the 
     legislative branch by determining SAB 121 as a major rule and 
     subject to the CRA. We appreciate your attention to this 
     matter.
           Sincerely,
     Patrick McHenry,
       Chairman, Committee on Financial Services.
     French Hill,
       Chairman, Subcommittee on Digital Assets, Financial 
     Technology, and Inclusion.
                                  ____

                                                February 14, 2024.
     Hon. Gary Gensler,
     Chair, U.S. Securities and Exchange Commission, Washington, 
         DC.
       Dear Chair Gensler: The Bank Policy Institute (``BPI''), 
     the American Bankers Association (``ABA''), the Financial 
     Services Forum (``the Forum''), and the Securities Industry 
     and Financial Markets Association (``SIFMA'') (collectively, 
     the ``Associations'' write to request that the Securities and 
     Exchange Commission (``Commission'') consider targeted 
     modifications to Staff Accounting Bulletin No. 121 (``SAB 
     121'') to address recent policy developments and the 
     challenges that SAB 121 has posed for U.S. banking 
     organizations since it was issued on March 31, 2022.
       As the two-year anniversary of the issuance of SAB 121 
     approaches, the Associations believe now would be an 
     appropriate time to examine and discuss the implications of 
     SAB 121 for regulated banking organizations. There have been 
     several relevant developments during this two year period, 
     including the GAO report issued in October, approval of 
     certain Spot Bitcoin ETPs, and the SEC's proposed rule on 
     Safeguarding Advisory Client Assets that would cover the 
     custody of digital assets if finalized as proposed. The 
     Associations believe that SAB 121 can be modified to mitigate 
     the specific challenges identified herein without undermining 
     the stated policy objectives of the Commission to enhance the 
     information received by investors and other users of 
     financial statements.
       The Associations are happy to continue to serve as a 
     resource and work collaboratively with the Commission to 
     provide recommendations that would ensure that investors are 
     provided the requisite disclosures while allowing responsible 
     innovation to occur. The Associations and Commission share 
     the common goals of ensuring the highest levels of investor 
     protection and implementing policies that advance principles 
     of market integrity and financial stability.
       We believe the recommendations set forth in this letter are 
     consistent with those principles and would remove unintended 
     barriers for well-regulated U.S. banking organizations to 
     engage in certain activities. Below we describe the drivers 
     behind this request and suggest targeted modifications to SAB 
     121.


                             I. Background

       Since SAB 121 was issued in 2022, the Associations have 
     articulated their concerns regarding the Bulletin to the 
     Commission both in writing and in meetings with Commission 
     staff. The foremost concern identified and discussed is how 
     the on-balance sheet requirement of SAB 121 negatively 
     impacts U.S. banking organizations and investors due to the 
     associated prudential implications. The Associations have 
     underscored that on-balance sheet treatment will preclude 
     highly regulated banking organizations from providing a 
     custodial solution for digital assets at scale. Moreover, the 
     Associations have highlighted that the on-balance sheet 
     requirement, coupled with the overly-broad definition of 
     ``crypto-asset'' in SAB 121, will have a chilling effect on 
     banking organizations' ability to develop responsible use 
     cases for distributed ledger technology (DLT) more broadly.
       U.S. banking organizations' experience over the past two 
     years has confirmed that SAB 121 has curbed the ability of 
     the Associations' members to develop and bring to market at 
     scale certain digital asset products and services. In 
     comparison, in-scope entities of SAB 121 other than U.S. 
     banking organizations have not suffered the same effects. For 
     example, digital asset custodial services are currently 
     offered by various non-banking organizations, thereby keeping 
     activity outside the prudential perimeter and avoiding the 
     necessary oversight by regulators. Indeed, if regulated 
     banking organizations are effectively precluded from 
     providing digital asset safeguarding services at scale, 
     investors and customers, and ultimately the financial system, 
     will be worse off, with the market limited to custody 
     providers that do not afford their customers the legal and 
     supervisory protections provided by federally-regulated 
     banking organizations. The Associations continue to urge the 
     Commission to work with industry to adopt solutions that 
     could mitigate the described challenges.


    II. Concrete Examples of the Impact of SAB 121 on U.S. Banking 
                             Organizations

       The Associations highlight two specific examples of the 
     negative impact of SAB 121 on banking organizations, 
     investors, and the financial ecosystem:
       (1) Spot Bitcoin ETPs: The Commission recently approved 11 
     Spot Bitcoin ETPs, allowing investors access to this asset 
     class through a regulated product. However, notably absent 
     from those approved products are banking organizations 
     serving as the asset custodian, a role they regularly play 
     for most other ETPs. These ETPs have already experienced 
     billions of dollars in inflows, but it is practically 
     impossible for banks to serve as custodian for those ETPs at 
     scale due to the Tier 1 capital ratio and other reserve and 
     capital requirements that result from SAB 121. This raises 
     important questions about the safety and stability of this 
     ecosystem. We believe that this result could raise 
     concentration risk, as one nonbank entity now serves as the 
     custodian for the majority of these ETPs. That risk can be 
     mitigated if prudentially regulated banking organizations 
     have the same ability to provide custodial services for 
     Commission regulated ETPs as qualified nonbank asset 
     custodians. SAB 121 does not appear to contemplate this type 
     of concentration risk, in part perhaps because Spot Bitcoin 
     ETPs or similar products were not an approved product at the 
     time SAB 121 was issued.
       (2) Use of DLT to record traditional financial assets: 
     Banking organizations are increasingly exploring the use of 
     DLT to record traditional financial assets, such as bonds. 
     The use of DLT has the potential to expedite and automate 
     payment, clearing, reconciliation and settlement services, 
     and multiple central banks outside the United States are 
     partnering with banks to explore the adoption of DLT. 
     However, SAB 121 has proven to be a barrier to banking 
     organizations' ability to meaningfully engage in DLT-based 
     projects due to the breadth of the definition of ``crypto-
     asset'' in SAB 121: ``a digital asset that is issued and/or 
     transferred using distributed ledger or blockchain technology 
     using cryptographic techniques.'' Under this definition, a 
     traditional financial asset issued or transferred using DLT 
     could be considered a ``crypto asset'' and thus within scope 
     of SAB 121, regardless of the applicable risks. SAB 121 makes 
     no distinction between asset types and use cases, but instead 
     generally states that crypto-assets pose certain 
     technological, legal, and regulatory risks requiring on-
     balance sheet treatment. However, there are significant 
     differences between a cryptocurrency like Bitcoin that exists 
     on a public, permissionless network versus a traditional 
     financial instrument that is recorded on a blockchain network 
     where access is controlled and transactions can be cancelled, 
     corrected, or amended. The past two years have underscored 
     these differences, as the turmoil in the crypto market has 
     been wholly unrelated to banks' use of permissioned DLT. DLT 
     does not change the underlying nature or risks of traditional 
     assets, nor do they present the risks SAB 121 purports to 
     address, and thus SAB 121's application to those assets 
     should be reconsidered. Clear indication from the Commission 
     that the use of DLT to record or transfer traditional 
     financial assets is consistently outside the scope of SAB 121 
     would alleviate associated challenges.


             III. Proposed Modifications and Clarifications

       The Associations request that the Commission consider the 
     following targeted modifications to SAB 121 to address the 
     above concerns:
       Narrow the definition of ``crypto-assets'' to clarify and 
     confirm the exclusion of certain asset types and use cases. 
     SAB 121 is premised on the risks posed exclusively by 
     cryptocurrencies, and traditional financial assets recorded 
     or transferred using blockchain networks should be excluded 
     because they do not present the same risks as 
     cryptocurrencies; the use of DLT does not change the 
     underlying nature or risk of traditional assets. Moreover, 
     certain exclusions for products wherein the underlying 
     activity relates to the offering of a Commission-approved 
     product should be clarified.
       Exempt banking organizations from on-balance sheet 
     treatment but maintain the disclosure requirements: As 
     described previously, SAB 121 answers three questions, and 
     the Associations' and its members' are primarily concerned 
     with the first question: how an entity should account for its 
     obligations to safeguard crypto-assets (the on-balance sheet 
     treatment). We do not object to the requirements imposed in 
     the answer to the second question (disclosures in financial 
     statements). Exempting banking organizations from the on-
     balance sheet treatment but requiring them to make certain 
     disclosures about their digital activity would mitigate the 
     concerns raised by banking organizations without undermining 
     the goal of SAB 121 to promote disclosures to investors. 
     Balance sheet disclosure may be appropriate where the 
     controls are not adequate to protect investors from the risk 
     of custodied assets, which is not the case for banking 
     organizations that are subject to robust oversight from the 
     federal banking agencies. The required disclosures in the 
     answer to the second question are broad and may include 
     disclosures in the description of business, risk factors, and 
     management's discussion and analysis of financial condition 
     and results of operation, and such information will still 
     ``enhance the information received by investors and other 
     users of financial statements about these risks, thereby 
     assisting them in making investment and other capital 
     allocation decisions.''


                             IV. Conclusion

       The Associations and their members appreciate your 
     attention to the issues raised in this letter. Given the 
     upcoming two-year anniversary of the issuance of SAB 121, 
     certain

[[Page H2961]]

     policy developments, the experience of U.S. banking 
     organizations, and the evolution in technology since the 
     guidance was first issued, we believe it is an appropriate 
     time to reflect on the intended goals of SAB 121. We request 
     a meeting with you and Commission staff to discuss the issues 
     and proposed modifications set forth above.
       We appreciate the Commission's attention to this important 
     topic and look forward to engaging with you further. If you 
     have any questions, please contact Paige Pidano Paridon.
           Respectfully submitted,
     Bank Policy Institute,
     American Bankers Association,
     Financial Services Forum,
     Securities Industry and Financial Markets Association.

     
                                  ____
                                Congress of the United States,

                                Washington, DC, November 15, 2023.
     Hon. Martin Gruenberg,
     Chairman of the Board, Federal Deposit Insurance Commission, 
         Washington, DC.
     Hon. Michael Barr,
     Vice Chair for Supervision, Board of Governors of the Federal 
         Reserve System, Washington, DC.
     Hon. Michael Hsu,
     Acting Comptroller of the Currency, Office of the Comptroller 
         of the Currency, Washington, DC.
     Hon. Todd Harper,
     Chairman of the Board, National Credit Union Administration, 
         Alexandria, VA.
       Dear Vice Chair Barr, Chairman Gruenberg, Chairman Harper, 
     and Acting Comptroller Hsu: We write regarding Securities and 
     Exchange Commission (SEC) Staff Accounting Bulletin 121 
     (``SAB 121'') published on April 11, 2022.
       Last month, the Government Accountability Office (GAO) 
     issued a legal decision that SAB 121 is a rule for purposes 
     of the Congressional Review Act. SAB 121 was issued without 
     consultation with any of your respective agencies and would 
     require custodians to recognize a liability and a 
     corresponding offset on their balance sheets, measured at the 
     fair value of the customer custodial digital assets. This 
     accounting approach, which deviates from established 
     accounting standards, would not accurately reflect the 
     underlying legal and economic obligations of the custodian, 
     and places consumers at greater risk of loss.
       In its decision, GAO stated that ``it is reasonable to 
     believe that companies may change their behavior to comply 
     with the staff interpretations found in the Bulletin'' due to 
     the SEC's responsibility and authority in monitoring public 
     disclosures and pursuing enforcement actions against 
     noncompliant entities.
       SAB 121 meets the definition of a rule under the 
     Administrative Procedure Act (APA), and was never submitted 
     to Congress or the GAO, nor was it subsequently published in 
     the Congressional Record consistent with the requirements of 
     the Congressional Review Act. Given that the SEC failed to 
     meet these obligations, SAB 121 should have no legal effect 
     and the Federal banking agencies and National Credit Union 
     Administration should not require banks, credit unions and 
     other financial institutions that provide custody services 
     for digital assets to comply. This means that such entities 
     need not recognize a liability and a corresponding asset 
     offset on their balance sheets.
       Enforcing this noncompliant rule would set a concerning 
     precedent that would facilitate regulatory gamesmanship to 
     circumvent the APA, effectively allowing the SEC to have 
     regulatory authority over institutions which Congress did not 
     authorize.
       We therefore ask you to clarify, through guidance or other 
     action, that SAB 121 is not enforceable in light of the 
     recent GAO determination. Thank you for your attention to 
     this matter.
           Sincerely,
     Patrick McHenry,
       Member of Congress.
     French Hill,
       Member of Congress.
     Ritchie Torres,
       Member of Congress.
     Wiley Nickel,
       Member of Congress.
     Cynthia M. Lummis,
       United States Senator.
     Kirsten Gillibrand,
       United States Senator.
     Mike Flood,
       Member of Congress.

  Ms. WATERS. Mr. Speaker, the sponsor of this bill, Mr. Flood, has 
asked what the alternative to this CRA resolution would be, and that 
answer is very simple: Draft a bill that narrowly addresses the current 
question about how this guidance applies to banks. The use of a CRA is 
dangerous and reckless.
  Mr. Speaker, I reserve the balance of my time.
  Mr. McHENRY. Mr. Speaker, my friend says dangerous and reckless. 
Well, Democrats used the Congressional Review Act process just like 
Republicans have used the Congressional Review Act process. This is not 
reckless or dangerous. It is law, and we are trying to be a check and 
balance on overreach of the administration.
  Mr. Speaker, I yield 2 minutes to the gentleman from Wisconsin (Mr. 
Fitzgerald), an esteemed member of the Financial Services Committee and 
Judiciary Committee.
  Mr. FITZGERALD. Mr. Speaker, I thank the chairman for yielding.
  Mr. Speaker, I rise today in strong support of H.J. Res. 109. I don't 
want to be redundant on some of these points, but the SEC's Staff 
Accounting Bulletin 121 is a radical departure from how custodians 
account for all other assets. By requiring custodians to treat digital 
assets as both an asset and a liability on their balance sheets, SAB 
121 makes it nearly impossible for banks to provide custody services 
for digital assets due to the prudential requirements that it would 
trigger.
  Innovations like the tokenization of assets have the potential to 
dramatically improve our financial infrastructure, and tokenization 
will allow new innovations and traditionally illiquid assets to become 
available to more people more efficiently, like commercial bank 
deposits, government corporate bonds, money market fund shares, real 
estate, gold, and other commodities.
  However, for tokenization to take hold, it is important for regulated 
financial institutions to be custodians in order to identify the 
entitlement holder and to mitigate any single point of failure in the 
record of the ownership.
  Mr. Speaker, this misguided action from the SEC should be struck 
down, and I urge my colleagues to vote ``yes'' for this resolution.
  Ms. WATERS. Mr. Speaker, I reserve the balance of my time.
  Mr. McHENRY. Mr. Speaker, I yield 3 minutes to the gentleman from 
North Carolina (Mr. Nickel), my good friend and colleague, and a great 
leader in digital assets.
  Mr. NICKEL. Mr. Speaker, I rise in support of the bipartisan 
resolution I am leading with my colleague across the aisle, Congressman 
 Mike Flood.
  Mr. Speaker, our Congressional Review Act resolution to disapprove of 
the SEC's Staff Accounting Bulletin 121 protects consumers, reinforces 
Congress' role in the rulemaking process, and pushes back on the SEC's 
hostility toward digital assets.
  Mr. Speaker, SAB 121 makes the digital assets industry less safe for 
consumers. It prevents well-regulated banks from safeguarding digital 
assets that are owned by their clients. SAB 121 requires banks to place 
custody of digital assets on their balance sheets, contrary to how 
traditional assets are treated. This makes it nearly impossible for a 
bank to provide custody of digital assets at scale, leaving investors 
to rely on riskier, unregulated options.
  Mr. Speaker, whether you love crypto or you hate it, you should want 
the most heavily supervised financial institutions who are experts at 
custodial banking to safeguard digital assets. We are also seeing this 
issue with SAB 121 play out in real time, the SEC's recent approval of 
spot bitcoin ETPs, which I pushed for, allows retail investors access 
to this asset class through a regulated product. However, most bitcoin 
ETPs are held by the same nonbank custodian. Notably, banks aren't 
serving as custodians for any of these products as they would with a 
traditional ETP. This could pose a risk to the safety and soundness of 
the financial system, a concentration of risk issue, for sure.
  To make matters worse, Gary Gensler and the SEC deliberately 
sidestepped the customary regulatory process, amounting to an obvious 
overstep of the agency's authority.
  Last October, the Government Accountability Office concluded that the 
SEC breached statutory rulemaking requirements by issuing SAB 121 as 
guidance rather than a rule, avoiding the notice and comment period. 
SABs are meant to serve as tools to interpret existing policies, not 
create brand-new policy like SAB 121.
  Additionally, the SEC issued the rule without conferring with banking 
regulators, which is unacceptable given the SEC's lack of prudential 
authority over banking institutions. It is time for Congress to take 
action and conduct oversight of the SEC's missteps. We shouldn't have 
to resort to using a CRA to fix this issue, and Gary Gensler could re-
issue this accounting bulletin

[[Page H2962]]

and work with stakeholders to find a solution, but, unfortunately, this 
is the only tool that we have left.

  As with previously successful CRAs, the SEC will be able to re-issue 
its rule as long as it has made changes responding to statements made 
by Members in the Congressional Record.
  Mr. Speaker, I ask my colleagues to support our bipartisan CRA of SAB 
121, which will protect investors and the financial system, encourage 
innovation, bolster American competitiveness, and restore Congress' 
role in administrative rulemaking.
  Ms. WATERS. Mr. Speaker, Mr. Davidson entered a letter into the 
Record from several bank trades. What he did not mention was that the 
banks only asked for target modifications when they wrote about this 
legislation. In fact, in that letter, they supported the transparency 
requirements this resolution would repeal.
  Mr. Speaker, I reserve the balance of my time.
  Mr. McHENRY. Mr. Speaker, may I inquire as to how much time is 
remaining.
  The SPEAKER pro tempore. The gentleman has 3\3/4\ minutes remaining. 
The gentlewoman has 7\1/2\ minutes remaining.
  Mr. McHENRY. Mr. Speaker, I am prepared to close, and I reserve the 
balance of my time.
  Ms. WATERS. Mr. Speaker, I yield myself the balance of my time to 
close.
  Mr. Speaker, I would urge my colleagues to see this bill for what it 
is. It is a giveaway to one powerful special interest group in an 
effort to weaken the SEC, a crucial agency that protects investors and 
the functioning of our capital markets. This is the agency that is 
working to protect the retirement savings of millions of Americans. 
This is the agency that is crucial to making our capital markets the 
envy of the world. This is the agency at the forefront of ensuring that 
innovation, like in crypto, is done responsibly and in accordance with 
existing security laws. We simply cannot afford to weaken the SEC.

                              {time}  1315

  Moreover, this resolution harms investors by eliminating much-needed 
transparency on volatile crypto assets, making it harder for them to 
make informed investment decisions. It also harms crypto users because 
transparency also deters fraud and other mismanagement of assets that 
can lead to devastating losses for consumers.
  Additionally, the resolution increases the likelihood of market 
volatility because a lack of transparency can result in more unexpected 
failures of crypto-related companies.
  Finally, this resolution harms all public companies who benefit from 
the SEC's practice of providing timely guidance through Staff 
Accounting Bulletins.
  If the Republicans would like to address the issue raised by large 
custody banks, they should do that, but there is no need to cause 
broader harm to the SEC and all of the people and companies that rely 
on it to maintain safety and stability.
  Mr. Speaker, the President of the United States would not be giving 
us this information this early about vetoing unless they saw this as a 
serious issue that must be dealt with right here on the floor of the 
House of Representatives.
  Mr. Speaker, I yield back the balance of my time.
  Mr. McHENRY. Mr. Speaker, I include in the Record a May 7, 2024, 
letter from the American Bankers Association, Bank Policy Institute, 
the Financial Services Forum, and the Securities Industry and Financial 
Markets Association supporting H.J. Res. 109.
                                                      May 7, 2024.
     Re Providing for Congressional disapproval under chapter 8 of 
         title 5, United States Code, of the rule submitted by the 
         Securities and Exchange Commission relating to ``Staff 
         Accounting Bulletin No. 121'' (H.J. Res. 109)

     Hon. Mike Johnson,
     Speaker, House of Representatives,
     Washington, DC.
     Hon. Hakeem Jeffries,
     Minority Leader, House of Representatives,
     Washington, DC.
       Dear Speaker Johnson and Minority Leader Jeffries: The 
     American Bankers Association, Bank Policy Institute, 
     Financial Services Forum, and Securities Industry and 
     Financial Markets Association (Associations) write to express 
     our support for H.J. Res. 109, the Congressional Review Act 
     resolution of disapproval for the Securities and Exchange 
     Commission's ``Staff Accounting Bulletin 121.'' H.J. Res. 109 
     was introduced by Reps. Mike Flood (R-NE) and Wiley Nickel 
     (D-NC) and favorably reported by a bipartisan vote from the 
     Financial Services Committee on February 29. The measure is 
     scheduled for consideration by the House this week.
       In March 2022, the Securities and Exchange Commission's 
     (SEC) Office of the Chief Accountant released Staff 
     Accounting Bulletin (SAB) 121, without consulting the 
     prudential regulators or soliciting public comment, to 
     address perceived risks to publicly traded companies that 
     safeguard digital assets for their customers. Under SAB 121, 
     an entity responsible for safeguarding digital assets for 
     platform users must measure safeguarding assets and 
     obligations on its balance sheet at the fair value of the 
     related assets, which is a departure from accounting 
     standards and the historical practice of treating custodial 
     assets as off-balance sheet. As this effectively treats the 
     custodied assets as those owned by a bank, SAB 121 
     effectively precludes banks from offering digital asset 
     custody at scale since placing the value of client assets on 
     their balance sheets will impact certain capital, liquidity, 
     and other prudential requirements. Furthermore, SAB 121 
     undercuts the ability of banks to develop responsible use 
     cases for distributed ledger technology (DLT) and encumbers 
     regulated broker-dealers from custody services as a result of 
     the net capital rule (Rule 15c3-1), which treats the on-
     balance sheet items as non-allowable assets.
       On February 14, 2024, the Associations sent a joint letter 
     to the SEC noting that over the past two years SAB 121 has 
     curbed the ability of our member banks to develop and bring 
     to market at scale certain digital asset products and 
     services. This includes spot bitcoin exchange traded products 
     (recently approved by the Commission for investors) and the 
     use of DLT to record traditional financial assets (i.e. 
     tokenization).
       SAB 121 represents a significant departure from 
     longstanding accounting treatment for custodial assets and 
     threatens the industry's ability to provide its customers 
     with safe and sound custody of digital assets. Other, non-
     bank digital asset platforms subject to SAB 121 are not 
     required to meet the same capital, liquidity, or other 
     prudential standards as banks and therefore do not face the 
     economically prohibitive implications of SAB 121. Limiting 
     banks' ability to offer these services leaves customers with 
     few well-regulated, trusted options for safeguarding their 
     digital asset portfolios and ultimately exposes them to 
     increased risk.
       The Associations respectfully request that Members of the 
     House vote in favor of H. J. Res. 109.
           Sincerely,
     American Bankers Association,
     Bank Policy Institutec,
     Financial Services Forum,
     Securities Industry and Financial Markets Association.

  Mr. McHENRY. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, the administration's approach to digital assets doesn't 
make a lot of sense.
  The President has an executive order outlining work products that he 
wants from agencies. On one hand, they say we want to bring digital 
assets into regulated finance, and we need clear rules of the road.
  On the other hand, the administration's appointees at the Securities 
and Exchange Commission have done everything they can to undermine that 
level of clarity, that is number one; number two, issuing guidance that 
undermines whatever the current clarity is and diminishing that; number 
three, thereby diminishing consumer protection.
  It is a nonsensical approach. So the administration says they want to 
veto this resolution. Yet they have a whole workstream the President 
issued without any forcing mechanism and executive order asking for a 
regulated stable coin, which we have passed out of the House Financial 
Services Committee with bipartisan votes.
  They have asked for a market regulation to give clarity of what is a 
digital asset, and a means of exchange so American consumers can 
participate in this innovation that is the basis of the new generation 
of internet technology that the globe is using and America is behind.
  I think it is important that we engage, as best we can, whether it is 
with the stable coin bill that we passed out of committee--the market 
regulation bill we passed out of committee--that it brings that clarity 
the President's executive order asked for, and takes this first step to 
provide consumer protection so that their financial assets are 
protected.
  If the firm goes bankrupt, they want to know they can get their asset 
back. Passing this repeal is the first step in that process.

[[Page H2963]]

  This is very important for consumer protection. If you support 
consumer protection vote ``yes'' on this resolution. If you support 
safety and soundness for financial institutions vote ``yes.'' If you 
support reining in rogue regulators vote ``yes.'' This should be a wide 
bipartisan vote and a statement that the House supports digital assets, 
digital innovation, and thoughtful policymaking from our regulators and 
regulated finance.
  Mr. Speaker, I urge adoption of this resolution. I also thank my 
colleagues on the Democrat side, Mr. Nickel, and on the Republican 
side, Mr. Flood, for their thoughtful approach to policymaking, and 
digital assets generally, but on developing this Congressional Review 
Act proposal, in particular.
  Mr. Speaker, I urge the adoption of the resolution, and I yield back 
the balance of my time.
  The SPEAKER pro tempore. All time for debate has expired.
  Pursuant to House Resolution 1194, the previous question is ordered 
on the joint resolution.
  The question is on the engrossment and third reading of the joint 
resolution.
  The joint resolution was ordered to be engrossed and read a third 
time, and was read the third time.
  The SPEAKER pro tempore. The question is on passage of the joint 
resolution.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.
  Mr. McHENRY. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this question will be postponed.

                          ____________________