My Two Cents

MY TWO CENTS by Debra Stamper KBA Executive Vice President & General Counsel dstamper@kybanks.com

Knowing Me Knowing You

I hesitate to remark on this, for fear it isn’t true. But, could the government be recognizing the fact that companies/individuals other than banks may need to be regulated as well?

I read an article that New York was expanding CRA-type requirements to “nonbank mortgage lenders.” Illinois and Massachusetts have done the same. Of course, this is not the Federal government, but could this trend make its way to DC and perhaps even cover credit unions at some point? Maybe they will realize that some of our competitors could be guilty of the crimes of which they accuse us.

Then, this morning, I see an Advanced Notice of Public Rulemaking released by FinCEN that is seeking public comments regarding inclusion of BSA requirement on a more inclusive group of “persons involved in real estate transaction.” The Government may finally be realizing that criminals are laundering money in ways other than bank accounts.

It’s refreshing to see eyes begin to open. But they cannot just look backward at long existing industries when the real threat is electronic. Cryptocurrency purveyors and other digital transmitters of electronic financial transactions are pushing hard for two things: one, recognition/legitimacy and two, direct access to the payment system.

While we know digital changes are inevitable, we must ensure that they are held to the same standards of compliance and standards of oversight as banks are. There is nothing to support its worth, so when it is gone, it is gone. The Fire King is heavy, but it isn’t permanently affixed to anything, so a physical “hacker” could abscond with it all. There is nothing to review to determine if it is likely to go up or down in the future. If the 10 largest contributors decide to get out when the value is high, the rest of you are out-of-luck, because there is no insurance. BUT, right now the value is very high and the holidays are near. Please let me know if you are interested.

Although I hope that no one wants to take me up on this deal, cryptocurrency is still in all the headlines.

Although the DOL regulations provide that employees must be paid in cash of negotiable instrument “payable at par,” people are willing to take their paychecks in cryptocurrency. Think about that…an employee at Walmart is willing to be paid at whatever their $13/hour paycheck coverts to in bitcoin, only to find that the next day it may have decreased by 50%.

Of course, it could go up, but what if you cannot wait for that? Then, you can also download a mobile app that allows you to use your cryptocurrency to pay for goods—Starbucks accepts it. I cannot even imagine paying for an overpriced coffee and then finding out if I had bought it two hours later the cost would have been 30% lower. Would you use your stock investments to buy and sell services and goods???

I don’t want to suggest that all digital or fintech companies are bad. Many are owned by or working with banks to make your services better. But, there are so many that it is almost impossible to determine which are what.

For example, Ballard and I spend a lot of time thinking about and discussing cryptocurrency. Why? Because no matter how much we read, listen to, watch or study, we cannot find an understandable explanation as to why it should be allowed and recognized as a currency rather than a stock, commodity or a Ponzi scheme!

As a matter of fact, I would like to start an anti-cryptocurrency:

I have a large Fire King filing cabinet. You and all your friends can give me a handful of money each and I will put it in the cabinet. (I decide how much each dollar you give me is worth on the first day I receive it). Each day other people can give me money as well. I will take a percentage of the money for my trouble. Each day I will send out a tweet telling each depositor how much each “one” money is worth. It may be more or less than your original deposit depending upon how much has been given to me, how much has been taken out and how much I keep for myself. We have to watch both the state and Federal legislatures to track what is being considered in the crypto-world.

The Federal legislators are telling banks to be cautious. But Kentucky has already passed legislation that allows for significant tax incentives for blockchain and cryptocurrency mining companies (which track cryptocurrency movement) which open in Kentucky. The excitement felt by some that Kentucky could be now be considered the friendliest state in the country or even the world for these activities might tee us up for more efforts to allow other, more competitive crypto related industries…such as crypto “banks.”

Two bills have been pre-filed that cause us concern on this front. We will watch these closely and talk to the sponsor. We may also need to call on you to make calls. Please be ready if we call!