Todd Phillips
@tphillips
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Banking and administrative law. @RobinsonCollege . Fellow @rooseveltInst . Fmr @amprog @fdic @acusgov .
Washington, DC
Joined March 2008
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@daveweigel
As someone who is literally grading student essays right now...you have no idea...
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Bitcoin is nothing like petroleum. The latter is an input into real-world goods and services. The former is not an input into anything.
The purpose of a strategic bitcoin reserve is simply to require the Fed buy bitcoin, sending its price higher for speculators already holding.
🚨SCOOP from me and
@CGasparino
: Wyoming Sen. Lummis plans to announce legislation for Strategic Bitcoin Reserve at Nashville conference
The hope is that
@realDonaldTrump
will endorse the bill and the idea behind it at
@TheBitcoinConf
this weekend.
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The argument is: Howey isn't the best way to decide what is an "investment contract." You also need a contract, post-sale legal obligations, and the right to share profit.
If this becomes the test, then crypto assets are most likely commodities, giving the CFTC jurisdiction. 2/
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All of crypto is in a meltdown, but the US financial system isn't. US banking regulators should be applauded for not allowing banks to add crypto to their balance sheets or accept crypto as collateral.
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Today, the Fifth Circuit declared the CFPB's funding mechanism unconstitutional. The logic is formalistic to the Nth degree, saying that Congress cannot fund agencies outside of the trad. appropriations process. Could have consequences for the FBAs, too.
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The FDIC deserves some serious praise for stopping SVB from opening Friday morning. If it had waited until Friday at 5 per usual there'd have been more outflows and even larger discounts.
Uninsured depositors are likely to get a lot of their money back. 3/3
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Just remember: Because bitcoin is a commodity and the securities wrappers aren't trading (yet), if this hack was done for market manipulation purposes it's in the CFTC's jurisdiction.
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I know much of academia is up in arms about students using AI. But I just gave a student a 44/100 on an essay that was clearly written by ChatGPT as the essay wasn't what I was looking for, the use of AI notwithstanding.
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I just read the motion to dismiss in SEC v. Wahi. Idk which way a court (or the Court) will go, but this is the most compelling argument that crypto assets are not securities I've read.
If the SEC loses its war against crypto, it's to this argument. 1/
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My point here is that AI is a tool that requires judgment. It can be used to great effect, and also be misused. Students still need to know what is appropriate in different situations.
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If the SEC loses to this arg, it could affect the SEC's authority over non-crypto assets. Idk how deep a cut that would be, but the SEC wouldn't be happy.
Anyway, my guess is this is the argument Coinbase will use when the SEC sues it, and imo that case is going to SCOTUS. 3/3
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News: I've accepted a tenure track Assistant Professor position with
@RobinsonCollege
@GeorgiaStateU
starting this fall!
In law school, truly never would have thought I'd end up in academia, but here I am. What a wild ride life is!
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Lastly, the Fed, FDIC, OCC, NCUA, and FHFA are all at risk now, too. That's bad news for bank regulation.
This is just a panel decision, and the CFPB will appeal. Maybe the 5th circuit en banc will overrule it, or maybe SCOTUS will. But I'm not sure they will.
Scary times. End.
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I was just awarded the 2024 Emerging Scholars Award by the AALS Administrative Law Section for my
@YaleJREG
paper, Commission Chairs!
Read it here:
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Preface: I'm just a guy reading things on the internet, so take this with a grain of salt.
The California regulator's order notes that SVB had outflows of $42 billion and a negative cash balance of $958m. So, let's say the bank has $170b in deposits. 1/
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.
@SECgov
is not receiving much love on Twitter for its efforts to bring certainty to crypto, so let me give it some. An admittedly oversimplified 🧵:
The securities laws protect investors by providing them ample information they can make informed investing decisions. 1/
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And $169b in assets. Let's say those are sold with a 10% haircut (extreme, but maybe). So, assume SVB owes $170b and has roughly $152b to pay out uninsured depositors.
That's a ~11% haircut. That's not great but not bad. 2/
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So why is this just wrong?
1) It's not what the Constitution says! For all conservatives say about words on the page having meaning, the 5th Circuit just reads "drawn from the Treasury" out of the Constitution.
2) What is the difference between an appropriations and other bill?
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Was just reminded that Barney Frank is on Signature's board, and supported S. 2155 (the 2018 Dodd-Frank partial rollback law)
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I'm pleased to say that the
@CFTC
has appointed me a member of the Market Risk Advisory Committee.
Thank you,
@CFTCjohnson
, for this privilege and opportunity!
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I don't think anything. Approps bills go through the appropriations committees in Congress, but those aren't in the Constitution. This is courts just making things up again.
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This is very important. 12 USC 4 allows the Treasury Secretary to appoint a Deputy Comptroller who may serve as Acting Comptroller. This is why Michael Hsu is currently Acting Controller.
Nothing is stopping them from designating Omarova as Acting Comptroller.
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My article, Commission Chairs, has just been published in
@YaleJREG
!
It's is the first comprehensive accounting of the powers held by multimember commission chairs, and it has profound implications for administrative law and unitary executive theory.
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What's next? Because CFPB lost on the grounds of this funding, the implication is that Congress needs to change CFPB's funding to annual approps for it to win any cases in the future.
That's bad for all the reasons Congress made it not subject to approps in the 1st place.
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Many thanks to
@FTAlphaville
for allowing me to publish thoughts on the
#Ripple
case.
In short, the judge did exactly what the SEC asked her to do: Apply the Howey test. In the future, the agency needs to be clearer about *why* the Howey test applies.
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Start on page 23. The CFPB succeeds at all other arguments, so no need to discuss.
The Constitution says "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law." Court says there are separation of powers reasons for this.
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Prediction: Coinbase is the case that goes to the Supreme Court. Don't pay attention to Binance. Stop paying attention to Ripple. Coinbase is what decides the legal issues.
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I have accepted a publication offer from
@YaleJREG
for my article, Commission Chairs!
An updated version is available here:
Comments are welcome, especially critiques of the research's implications for the unitary executive theory.
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I'm glad that we won't see contagion, but it seems shocking that uninsured depositors will receive 100% back.
Back to the drawing board with banking reg. Congress will need to do some soul searching after this about deposit insurance and prudential regulation for midsize banks.
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Some personal news! I'm now a fellow with
@rooseveltinst
, focusing on finreg and fintech/crypto
➡️
@tphillips
’ work will focus on financial regulation and regulatory policy, especially of digital assets and financial technologies.
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Fifth Circuit declaring the SEC unconstitutional and overruling the Administrative Procedure Act over here
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Coinbase says that when an agency acts by enforcement, rather than rulemaking, it does "violence to the separation of powers."
Last time I checked, ONLY the executive branch can bring enforcement actions, making it *the most executive* action possible.
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Why do people think that deploying a smart contract is the same as publishing a pamphlet or writing a newspaper?
The gov't can't stop you from putting your code up on github. But they can stop you from running an unregistered securities exchange.
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3) Dodd-Frank says that CFPB funds "shall not be construed to be Government funds or appropriated monies." So, when Congress wrote Dodd-Frank, it (apparently) violated the separation of powers by "expressly renounc[ing] its check" on the CFPB.
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Today,
@beau_baumann
and I filed an amicus brief in the
@SECGov
v.
@coinbase
case, with the great help of lawyers at
@DemocracyFwd
. We argue that the SEC's enforcement action does not trigger the major questions doctrine. 1/
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The CFPB gets its money from the Fed; 12% of the Fed's annual budget. Note, this isn't money being drawn from Treasury, like the Constitution prohibits.
So, what's the problem? 1) it takes $ away from the Treasury (what the FRB would have remitted to UST now goes to CFPB)
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This is an opinion that makes complete and total sense, which is why it was 9-0. Agencies expert in particular areas of law should not be opinion on their own constitutionality.
Requiring them to do so would go against the reasons we have expert agencies in the first place.
Just one opinion from the Supreme Court today, in Axon Enterprises v. FTC. Justice Kagan's opinion for the court allows a challenge to administrative law judges to proceed in federal court.
No more opinions today.
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2) The CFPB gets to set its own funding. Congress doesn't get to weigh in.
The court calls this "double insulation" - getting to set its own budget and the money doesn't come from the Treasury.
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From what I'm reading, there's just so much misinformation out there.
Regulators and legislators need to get on TV and talk about what's going on.
1) Get the FDIC Board in front of a lectern and explain why SVB was unique. 90+% of depositors uninsured, unique asset mix, etc.
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2) CFPB says "our money isn't coming out of the Treasury, like the Constitution prohibits, it comes out of the FRBNY." The Court says "nope," the prohibition against money coming out of the Treasury doesn't mean that explicitly, it means something more *waves hands*
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I personally think having a Republican Fed chair acknowledge the need to address climate risk to the financial system, and commit to addressing those risks, is a very big deal.
Powell says he supports the FSOC climate report.
You know, if you were wondering if there would be any drama here.
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3) CFPB says "Fed, FDIC, OCC, NCUA, and FHFA also have these funding mechanisms." Court says that's comparing apples with a grapefruit. See image. The CFPB is different from these agencies *because*.
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The SEC's complaint today over the sale of Hydro tokens is going to be the lawsuit to make clear that airdropped tokens can be securities.
The key, IMO, is that the defendants sold tokens in the secondary market after the airdrop. 1/
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The Court then shoots down the CFPB's arguments.
1) CFPB argued that Congress OK'd the funding when it passed the CFPA (the CFPB's statute). But the Court says that "nope," that wasn't an "appropriations" bill, so it doesn't count.
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Yes, it's *literally* over when you've lost...the same member of Congress who's been butting heads with Gensler for years.
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This is REALLY surprising, since it would tacitly acknowledge that ETH is a commodity, not a security.
JUST IN: U.S. regulators are poised to approve $ETH futures ETFs, Bloomberg reported Thursday.
@inkbacker
reports
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All in all, the Court says that the CFPB is “no longer dependent and, as a result, no longer accountable to Congress and,
ultimately, to the people." By abandoning its check on the CFPB, "Congress ran afoul of the separation of powers embodied in the Appropriations Clause."
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Woah!
@CFPB
just put out an advisory that payment apps like PayPal and Venmo lack deposit insurance.
"Until payment apps are designed to automatically sweep balances into a user’s insured account, consumers may need to take action."
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The SEC has never, ever claimed Chevron deference in its crypto lawsuits. Loper Bright will not change a single thing about crypto litigation.
Judicial conservatives not up to speed on the Gensler SEC’s unlawful, unconstitutional war against crypto should pay attention now.
Crypto will be ground zero in post-Loper-Bright caselaw.
This piece by Iowa SG is your first reading assignment.
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I’m disappointed in the “let crypto burn” rhetoric flying right now. Let me explain why. A (too long) 🧵:
Crypto assets are just code, maybe representing something else (eg how internet cookies represents me when I visit a website), or maybe not represent anything at all. 1/
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I encourage everyone to read Alex Thornton and my new report on crypto. In it, we review the existing regulatory structures in place that apply to crypto assets, and conclude that Congress should focus on filling in regulatory gaps. 1/
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Policy proposals here:
1) Expand the FDIC’s authority to claw back compensation
2) Strengthen FDIC’s authority to bar executives from holding jobs in the banking industry
3) Expand the FDIC’s authority to bring fines against executives of failed banks
BREAKING: Biden calls for tougher punishment of failed bank executives
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I had a call right as the Coinbase opinion was coming out, so here's my thread as I read through it.
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Look what just came in the mail! My first published law review article! Thanks
@AdLawReview
!
In it, I argue that (1) agencies should make more policy by adjudication and (2) these policies can be made to warrant Chevron deference.
Read it here:
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I'm pleased to announce that
@Prof_Bruckner
and my piece, Stabilizing Fake banks, has found a home with the Stanford Law & Policy Review! We look forward to working with them!
You can find an early draft up on
@SSRN
:
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I have a piece up
@rooseveltinst
about how S.2155 (the 2018 banking rollback) contributed to SVB's collapse last week.
Read it for details, but here are the things regulators and Congress can do going forward:
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@daveweigel
Yes, but Rs in 2025 could also blow up the filibuster for a national abortion ban
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Judge Failla adopts
@beau_baumann
and my argument about how the MQD cannot apply to the SEC's crypto enforcement actions!
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My article on the administrative law of bank supervisory guidance has been accepted for publication in
@ASUCABLJ
!
Final version coming this summer. Until then, comments welcome!
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@mattyglesias
I ask students on an exam each semester to describe the difference between equality and equity. So, so many students write that equality is treating everyone the same and equity is ownership in a company.
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🚨New paper alert: What's Left But Enforcement Actions?
The recent Supreme Court term, with Loper Bright, Ohio v EPA, and Corner Post, disincentivizes agencies from writing legislative rules. 1/
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Judge Rakoff with a great comment on (not) applying the MQD to crypto.
Not the argument that
@beau_baumann
and I make in our forthcoming paper, the Major Question Doctrine's Domain, but a good one nonetheless!
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I highly recommend folks read
@STOmarova
's article "The Quiet Metamorphosis," on how the OCC changed the law allowing banks to use derivatives.
She understands not only banking but the history of banking. And that's unbelievably important.
NEW: Biden will to nominate Saule Omarova, a law professor who has criticized cryptocurrencies and advocated for the govt to have a much bigger role in banking, to run the OCC
Saule Omarova
w/
@jesseahamilton
+
@benbain
More on
@TheTerminal
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@TheStalwart
I mean, at least they're telling people to stop direct deposit instead of keeping that money coming in.
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My initial thought from reading the SEC settlement with BlockFi is that this isn't really about crypto. The crypto simply served as loan collateral to institutional investors, clearly making BlockFi an investment company. 1/
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I'm out this morning with a new
@rooseveltinst
report about the dangers of relying on *this* Supreme Court to decide whether crypto assets are securities or commodities. Thanks to
@Zachary
for covering it!
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The Great Bank Robbery of 2023: "the yawning gap between what you are paid on your deposits and what banks are earning from other institutions when they loan out your money."
Banking is a business, and you need to shop around for the best prices.
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Hi folks, I'm writing an op-ed partially about how crypto has repeated old lessons learned. I have years 1637, 1825, 1907, 1929, and 2007. Any other events in history that crypto has repeated?
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I'm glad someone picked up on this. I was not expecting this conclusion, and it is *very* scary.
"The FDIC said that from 2017 to 2023, it was unable to adequately staff a team of examiners dedicated to regulating Signature."
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.
@FDICgov
is officially under new management today, and with an incredibly strong initial statement from the Actin Chair! Priorities include:
* the Community Reinvestment Act * climate change
* the Bank Merger Act
* crypto-assets
* the Basel III capital rule
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Pre-1929, speculation ran rampant. Investors made $ as securities went ⬆️, borrowed $ to buy securities sure to ⬆️, and lost it all when markets went ⬇️. You couldn't tell whether something was a good investment. No auditing meant no trust in financial statements. 2/
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Alright, new stablecoin legislation just dropped. Follow along as I dive in!
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I mean, yes? Have folks not realized this is the endgame? If a smart contract is deployed that facilitates trading of securities, it must be registered with the SEC as broker, exchange, or ATS.
The alternative is to register the blockchain. Would crypto folks prefer that?
SEC’s suggestion in Rule 3b-16 reproposal that a dev co that deploys an immutable smart contract would be required to register as an exchange implies that decentralization is an impossible goal. Are we tilting at windmills?
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I made a comment last night about RIP Dodd-Frank. After sleeping on it, I'm not sure that's true. DFA was largely about non-banks. The institutions here were all chartered banks.
This was a 1980s style banking crisis made real with 2020s social media.
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Come work with me on our finreg team!
* Research Assistant: 1-2 years out of undergrad
* Policy Analyst: ~3 years out of undergrad or an advance degree
Since I know a lot of law professors follow me, the policy analyst would be great for a JD who just graduated!
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This is a huge issue, and I'm glad
@nytimes
is highlighting it.
After the S&L Crisis, Congress gave the financial regulators more flexibility when it comes to paying employees given competition from regulated firms. It may be time to update those rules again. 1/
With a tight labor market and hot inflation, the F.D.I.C. has been struggling to keep staff from being lured away by more lucrative jobs, leaving its ranks depleted as it faces the threat of a banking crisis.
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Just to make things more interesting, let me say that there's a debt ceiling angle to SVB.
If there is contagion, many banks run, and the FDIC's deposit insurance fund gets used up, it's a problem. The DIF gets recapitalized by the Treasury selling bonds. 1/
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Today Sens Lummis and Gillibrand released their new crypto bill. It is a big improvement over Lummis’s original bill but is still highly problematic. My take: The status quo is better than this bill and it's not a compromise I'd accept.
Here are some highlights. 1/
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No one can suggest the Fed isn't paying attention to current events. This stress test included a 40% decline in CRE prices and increase in office vacancies.
The Fed says big banks can withstand a severe recession, hints it’s working to make its annual stress tests more stressful — by assessing how banks handle multiple risks rather than a single “adverse scenario” that typically shows interest rates declining.
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Hey, look what came in the mail today!
If you're interested in reading my paper, Commission Chairs, you can find it here:
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@mattyglesias
Congress made unsupervised banking a crime in 1933. That law is still on the books. 12 USC 378. But for some reason DOJ just doesn't enforce it...
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This bill is not it, but the vote shows that Democrats need a legislative answer to the question about what to do about crypto--one that doesn't undermine the 90+ year old securities laws.
NEW: A whopping 71 Democrats just helped Republicans pass their crypto overhaul 179-136.
Household names like Pelosi and Schiff plus party leaders including Clark voted "yes" on the bill.
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I'm pleased to announce that
@Prof_Bruckner
and my piece, Consumer Shadow Banks (née Stabilizing Fake Banks), is now out in the
@SLPRonline
and up on SSRN!
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Think of it this way: The SEC gets to shape the securities laws. We want them doing that, because Congress can't legislate quickly enough & courts aren't experts here.
But if we say the SEC can opine on constitutional issues, we're asking them to go outside their ambit. 2/
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@mjs_DC
Argh! I am so frustrated by the way lawyers treat congressional investigations. Congress can propose amendments to the Constitution, and any matter can be subject of a constitutional amendment. Therefore, Congress can investigate anything.
Why is this so hard for people to get?
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Crypto flips partisan ideologies on their heads. This is the GOP Solicitor General of Iowa saying that a federal agency should engage in legislative rulemaking rather than allow independent judges to interpret the law under Article III.
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I don't agree with Scott on many things, but I have to agree with this. Syndicated loans are just an arbitrage out of the securities laws. The SEC had an opportunity to try to put a stop to this arbitrage earlier this year and...it decided not to.
Newsflash: Corporations every day use "careful lawyering" to engage syndicated loan markets to the tune of billions in order to LEGALLY "arbitrage various jurisdictions and states" and avoid the cost of registration. Of course, this is perfectly fine for ... reasons?
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I have a new piece titled Crypto Skeptics' Supreme Risk. In it, I argue that relying on John Roberts' Supreme Court to retain the Howey Test articulated in 1946 is very risky. 1/
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One interesting thing about this letter is that it's implying that if a bank meets all applicable requirements, depositors should be made whole, even if the bank fails.
If that becomes the standard, we'd need to increase regulations A LOT.
NEW—
@RepJoshG
is circulating this letter, which, among other things, calls on congress/regulators to raise the limit on deposit insurance.
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Celsius was a bank. Taking ownership of assets to re-lend them out to borrowers is what banks do. The fact that Celsius and similar companies were permitted to operate without capital, liquidity, and other requirements is a huge failure of public policy.
Significant moment in the Celsius bankruptcy as Judge Martin Glenn rules that $4.2bn of crypto deposited by customers to earn interest belongs to the estate, not the users:
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I'm not sure that *just* saving SVB's uninsured depositors at this point would solve the problem. There's been so much misinformation out there that you'd need to pledge to save uninsured depositors at all institutions, b/c maybe my bank isn't big enough to be saved.
Scoop: Federal authorities weigh safeguarding *all* SVB deposits, per 3 sources
Would require finding broad risk to financial sector
Then need regulatory approval
NOT final/decided
Fdic, Fed, Treasury discussing
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I was at
@FDICgov
when Meghji was there. This op-ed is offensive to the expertise and dedication of staff and severely misstates what was actually happening inside the agency. Staff want and wanted to get things right. Leadership wanted to move quickly.
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This is big for the CFPB. The 2d Cir dives into the history of the Appropriations clause, looking back to English history, to deem the CFPB's funding constitutional, contra the 5th Cir's ruling.
SCOTUS has already said it'd hear this case, but now there's a circuit split.
The 2nd Circuit found that the CFPB's funding through the Fed is constitutional in a case revolving around a challenge to an agency civil investigative demand.
This is an issue that the Supreme Court is going to consider in its October term.
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Up on SSRN is a new *draft* paper on stablecoins and deposit insurance. I examine whether SCs warrant or are eligible for DI. Except for tokenized deposits, I conclude the answer is no. I also conclude that banks should not issue uninsured SCs.
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I can think of no one better for Vice Chair of Supervision than Sarah Bloom Raskin.
Biden is nearing a decision on Fed vacancies, and is considering Sarah Bloom Raskin for the vice chair of supervision and economists Lisa Cook of Michigan State and Philip Jefferson of Davidson College for two other Board seats
W/
@amacker
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The crypto industry pre and post the recent downturn looks like this. Holders made money as tokens went ⬆️, borrowed money to buy tokens sure to ⬆️, and lost everything when the market went ⬇️. Only info largely from whitepapers: frequently sparse documents provided w/o audit. 3/
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Calling all bank nerds! I joined
@AlexH_Johnson
and
@khaslett
on the latest episode of Bank Nerd Corner, a monthly episode of the Fintech Takes podcast, to discuss two recent papers of mine on consumer shadow banks and bank supervision. 1/
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There's a *very* interesting quote in this story about supervision of SVB.
After the FBA's guidance-on-guidance doc, "it became more of a battle to get a bank to agree to changes." An examiner said the move “created 10,000 more steps.” 1/
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