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Joe Smith has been (among other things!) the general counsel of a regional bank, Commissioner of Banks for North Carolina; and the official independent settlement monitor of the National Mortgage Settlement. And Joe has some reflections on these experiences that I recommend reading. One easy way to get started is with his 2026 essay published by The North Carolina Banking Institute.
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I have a new draft article circulating, The Market for Ideas: Viewpoint Discrimination in Banking. The paper addresses both the positive claims that banks have engaged in viewpoint discrimination by “debanking” political conservatives and Christians and the normative claims from right and left that banks should be regulated as common carriers or public utilities. Basically, the evidence on debanking is remarkably weak; banks often have good reason to close accounts related to credit risk on charged-back payments and AML compliance burdens. On top of that, the normative case for common carrier or public utility regulation makes little sense: banks are not natural monopolies, the very nature of their business requires discrimination for credit risk, and if they are acting solely out of animus, the market will price against them for it.
At core, however, the real issue is that if the First Amendment means anything, then viewpoints cannot be treated as a protected class. Ideas have to sink or swim in the marketplace on their own without government subsidization.
The abstract is below:
May banks engage in viewpoint discrimination? That is, may a bank deny service to an anti-vaxxer or an antifa or an election denier? Concerns about viewpoint discrimination in banking have been a conservative cause for a decade, with “viewpoint debanking,” seen as an extension of progressive cancel culture. Yet there is scant evidence that banks, even in the face of regulatory pressure, have engaged in viewpoint discrimination, aside from a few cases related to the January 6 insurrection. To the contrary, bank account closings can often be explained by viewpoint-neutral concerns over credit and anti-money-laundering compliance risk.
Despite the dearth of evidence of an actual viewpoint discrimination problem, scholars on the right and left have argued for treating banks as either common carriers or public utilities, both of which are subject to a general duty of non-discrimination, not just in regard to personal status, such as race, sex, or religion, but also regarding customers’ lines of business, and political or religious views. Banks, however, have never historically been regulated as common carriers or public utilities and with good reason: they do not raise the concerns about monopoly power that animate common carrier and public utility regulation, and the very nature of the service they provide requires discrimination based on individualized counterparty credit and compliance risk. Moreover, prohibiting viewpoint discrimination forces a cross-subsidy among bank customers in which low-risk customers are forced to subsidize the high-risk ones, which just transposes the problem: viewpoint subsidization is itself viewpoint discrimination.
Allowing viewpoint discrimination means that all viewpoints are subject to market discipline: if a customer’s viewpoint imposes risk on a bank, then the bank should be allowed to price against it, while if a bank discriminates against a viewpoint solely from animus—that is, an expression of the bank’s own viewpoint—then market will price against the bank, which will lose market share to non-discriminating banks. Banks should be free to reject customers for any reason unrelated to personal status, including viewpoint. Doing so is a business decision that is best left to private actors and checked by the marketplace, not government.
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In order for stablecoins to operate like money, there cannot be any issuer credit risk. Otherwise coins will be discounted based on the financial strength of the issuer. That will cause transactional friction because buyers and sellers might not agree on the appropriate discount. It also means that different coins cannot possibly be good delivery for each other.
The GENIUS Act tries to reduce issuer credit risk as much as possible. First, it requires payment stablecoins to be backed by reserves and creates a regulatory oversight system to create some confidence that the claimed reserves are in fact there. That’s basically replicating what the National Bank Act of 1864 did when it created national bank notes and a federal bank regulator to inspect the national banks that issued those notes.
Second, the GENIUS Act has a provision regarding the insolvency of a payment stablecoin issuer. It aims to reduce credit risk by saying that the holders of payment stablecoins have first priority, coming ahead of all other claimants, for the issuer’s reserves. And second, it directs the bankruptcy court to pay out on the stablecoins as soon as possible, namely within 14 days of “the required hearing.” The idea here is to ensure that there is minimal liquidity disruption.
Here’s the thing. The GENIUS Act fails miserably at both of these bankruptcy goals. Holders of payment stablecoins actually will rank fifth in a bankruptcy distribution, coming after (1) repo and margin lender claims, (2) the DIP lender, (3) the bankruptcy professionals via the DIP lender’s carve-out, and (4) set-off claims from depositaries and brokers. Those claims will gobble up a huge chunk of any reserves, so recoveries for payment stablecoin holders will be severely diminished.
Moreover, because of the nature of the DIP lender and professionals’ claims, no distribution to the payment stablecoin holders will be possible until well into the case, if not the very end of it. That might mean waiting months or years for a distribution.
Let me put it bluntly: a stablecoin issuer bankruptcy won’t be like an insured deposit claim against an FDIC insured bank, where you get 100¢ on the dollar back incredibly fast (perhaps next day). In a payment stablecoin issuer bankruptcy there will be a large haircut on the stablecoins and the payment won’t be any time soon.
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You can checkout anytime you like, but you can never leave. That’s how I’m feeling about one of my banks. I recently decided to close a particular bank account. Turns out that the bank, which allows me to open new accounts on-line, won’t allow me to close accounts except in person. Having to go into a branch is a minor inconvenience, and I’m sure that’s the point: the added friction makes it that much harder to break up with the bank and gives the bank another opportunity to try to sell me additional services. What’s more, it gives the bank another shot at levying some fees on the account for one reason or another.
If pressed, I’m guessing that the bank would claim some security issue means that they need to verify my identity in-person. That’s nonsense: they had no problem letting me clear out the balance via an on-line transaction. This is just about making the deposit account relationship stickier and therefore less competitive.
So if there’s still anyone home and listening at CFPB, this should be low-hanging non-partisan fruit: use your UDAAP authority to put out a Hotel California rule that will make it easier for consumers to voluntarily close their deposit accounts. Think of this as the deposit account version of click-to-cancel. If the consumer is able to transfer all funds out of the account on-line—that is if the bank offers on-line funds transfers and there’s no hold on the account at the time—the consumer should also be able to close the account entirely on-line.
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With the GENIUS Act signed into law now we get to see if stablecoins can actually walk the walk, not just talk the talk. The story the stablecoin industry has told is one of payments innovation, particularly for international payments, with stablecoins poised to displace the expensive and ungainly wire transfer system. Is this right?
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When will Donald ever learn to run his tweets by counsel before posting them? He consistently shoots his legal position in the foot. The latest is about the implicit government guaranties of Fannie Mae and Freddie Mac: 
Pro tip: it’s not an “implicit” guaranty if you say it out loud. Once you do, it’s explicit. 🤦
That’s actually potentially a huge problem for federal accounting purposes. The whole reason that Fannie and Freddie’s enormous book of debt is not on the federal balance sheet, blowing through the debt limit, is that the guaranty has always been implicit: it’s about a wink and a nod. With this tweet, I am not sure that it is possible for Fannie/Freddie to come off the federal balance sheet even if privatized because of the now “explicit” guaranty. (Or as a fallback, there’s a promissory estoppel argument.) As far as I can tell, because of an over-eagerness to tweet, Fannie and Freddie’s obligations now bear the eagle. Maybe the CBO will view this differently, but all that comes to mind right now is the timeless words of Napoleon Dynamite:
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The Supreme Court is welcome to have its opinions. But it is not welcome to have its own facts. Fact-finding is at the core of the judicial enterprise, and once the Court starts simply making things up, it loses its legitimacy.
The Court took a dangerous step in that direction today with its opinion granting the President's order for a stay of the District Court's injunction of the President's removal of a member of the National Labor Relations Board and of the Merit Systems Protection Board.
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The Senate is set to take up a vote on this Thursday on the GENIUS Act, the legislation to create a regulatory framework for stablecoins. Whatever else one might think about stablecoins or the GENIUS Act, its insolvency provisions are an absolute mess, both conceptually and in drafting. If the GENIUS Act becomes the law, we're in for a FUBAR situation when a stablecoin issuer ends up insolvent. Even more concerning, if a bank custodian for a stablecoin issuer's reserves ends up insolvent, the claims of the stablecoin investors will come ahead of the bank depositors. That's right. Crypto comes ahead of ma-and-pa.
The effect: stablecoins are being subsidized by bank deposits. Now that's GENIUS.
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The Trump Organization is trying to shake down Capital One. And they’ll probably succeed. The Trump Organization has sued Capital One for closing its accounts in January 2021, allegedly because of Donald Trump’s political views. (Or, put differently, Capital One decided that it was not good business to continue being associated with an entity connected to the January 6 insurrection.)
As a legal matter, the Trump Organization's complaint is risible; Capital One should be able to easily get the case dismissed. But that might not matter because the Trump Organization has them over a barrel: if Capital One doesn’t pay up, the implicit threat is that the Trump administration will move to block the Capital One-Discover merger and generally make life unpleasant for Capital One. (Of course, if the Trump administration were really clever, they wouldn’t have dropped the CFPB suit so fast, but that’s probably just that the right hand didn’t talk to the left.) That’s gangster capitalism and underscores the incredible conflicts of interest that continue to exist for Trump.
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