Senator Durbin Introduces Bill Prohibiting Federal Crypto Bailouts
Commentary by Steven Lofchie
Senator Dick Durbin (D-IL) introduced legislation that would prohibit federal agencies from providing financial assistance to digital asset market participants to prevent their failure or bankruptcy.
The "No Bailout for Crypto Act" would prohibit federal agencies from providing financial assistance to (i) digital asset intermediaries, (ii) digital asset service providers, (iii) distributed ledger protocols, (iv) decentralized finance trading protocols, and (v) traditional financial service providers with respect to their digital asset activities. The legislation defines a "decentralized finance trading protocol" as a blockchain system that allows participants to execute financial transactions via "predetermined, non-discretionary algorithms" without relying on third parties to maintain custody of users' digital assets.
The legislation explicitly cuts off industry access to specific federal emergency safety nets. Under the bill, covered entities are barred from accessing any emergency liquidity facilities established under Section 13(3) ("Powers of Federal Reserve Bank") of the Federal Reserve Act. Additionally, the Secretary of the Treasury is prohibited from using any funds from the Exchange Stabilization Fund for the benefit of such entities or their related activities.
The bill further clarifies its scope by including a "rule of construction" to ensure that its prohibitions do not disrupt standard central bank lending to traditional financial institutions. It specifies that the ban on financial assistance does not alter the Federal Reserve’s existing authority to lend to depository institutions under Section 10B ("Advances to Individual Member Banks") of the Federal Reserve Act.
Commentary
One would think that Congress has more substantive things to do than ban events that are unlikely to happen in the absence of the ban.