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Emily Russell: Hi, everyone. It’s great to be here. I’m Emily Russell. I’m the policy editor at Barron’s. I’m happy to be joined here today by some great guests. We’re going to discuss the regulatory state in a few different key areas, from banking to crypto to public markets. Just a few notes. We’re going to be doing a discussion amongst the four of us for about 30 to 45 minutes, and then we’ll open up the floor to a Q&A. If you’re watching virtually, you can submit questions via Cato’s homepage, Facebook, or YouTube, or on X using the hashtag #CatoEcon. We will also be accepting questions in person, of course.

So here to discuss some of the regulatory changes that we’ve seen over the past 20 or so months of the Trump administration, we have Summer Mersinger, who is the CEO of the Blockchain Association, a leading nonprofit advocacy group for the crypto industry. She previously served as a commissioner of the Commodity Futures Trading Commission from 2022 to 2025, and she’s worked for more than two decades in DC, both at the CFTC and on Capitol Hill. She was chief of staff for Senator John Thune.

Next to Summer, we have Jill Castilla, who is the chairman, president, and CEO of Citizens Bank of Edmond, which is a 125-year-old community bank in Oklahoma. She is also the founder of ROGER, a digital-first military bank, and she spent nearly a decade with the Federal Reserve Bank of Kansas City. She represented the Tenth District on the Federal Advisory Council, where she advised the Fed on the commercial banking industry. American Banker has recognized Jill as among the most powerful women in banking for 12 consecutive years.

We also have David Burton, who is a lawyer and senior research fellow in economic policy at the DC think tank Advancing American Freedom. He focuses on securities regulation, tax policies, and regulatory and administrative law issues. He’s also worked as a researcher at the Heritage Foundation and has served as general counsel at the National Small Business Association. That was a mouthful.

Okay, so we’ll just dive right in. Summer, I want to start with you. You’ve been on both the regulatory side and, now, the industry side, representing crypto firms. Can you give some insight into how those two sides are interacting right now? Has the relationship changed over the past year or so? And give us some insight into what you see those relationships developing into.

Summer Mersinger: Yeah. It definitely has changed. With the change of administration came more of an open-door policy with the regulators. I will say, when I was at the CFTC, I felt like we were pretty good about always welcoming all stakeholders in to talk with them, learn about their businesses, and help them find a way to comply with our rules. It was probably less so at the SEC. Both agencies have created these task forces: the Innovation Task Force at the CFTC—

Emily Russell: Mm-hmm.

Summer Mersinger: —and the Crypto Task Force at the SEC. And it really is staff who just want to hear about these businesses, want to hear what’s happening in crypto, and learn more about the process and the technology behind it. So it really has been an opportunity to educate the regulators that I didn’t feel was there when I was at the CFTC. I was always kind of—I wanted to see more. And so yeah, it’s been a great relationship between the two agencies, and it feels like a partnership, not an adversarial kind of relationship the way it did a few years ago.

Emily Russell: Sure. Jill, there’s a similar, maybe, shift in relationships happening in the banking industry. The Trump administration and Fed Governor Michelle Bowman are very much working to change some regulations. Can you talk about what you’re seeing, and if the community banking sector, from your point of view, is experiencing any of those changes yet?

Jill Castilla: It’s been so incredible to have a vice chair for supervision that’s actually been a community banker. I mean, Miki Bowman, vice chair for supervision, sat in a community bank—has this amazing little family bank in Council Grove, Kansas, that is just central to the economy of that community. And so she understands the importance of being able to match regulation with risk, oversight with risk, action towards risk, rather than having this really burdensome environment that’s stifled innovation. It’s kept smaller banks from being competitive. It’s restricted the formation—

Emily Russell: Mm-hmm.

Jill Castilla: —of new community banks. We’ve seen lots of changes. Even just her direction to supervisors has really shifted again to more of a material risk, rather than just nitpicking a policy, rather than thinking about, “Is this going to be the demise of an institution if we don’t take action?” Not rewarding supervisors for the number of MRAs and MRIs that they cite—

Emily Russell: Mm-hmm.

Jill Castilla: —but rather if they’re able to identify opportunities. We had an examination just a few months ago, and the tone was completely different. It was about really understanding our business model, guiding us through potential risks that we might not be seeing, giving us kudos whenever we are able to identify risk, and it was much more collaborative. And so I think that will help us be sustainable for the next 125 years.

I think the other thing is being able to put capital to action. A lot of focus has been upon capital reform for the nation’s largest institutions. But for the smallest, we are able to opt into a community bank leverage ratio. They were able to move that down to 8 percent, so we’re able to deploy more capital out to the community in a safe and sound manner. And so that allows community banks to be much more competitive with larger institutions and other competitive actors in our economy, and be able to sustain and accelerate economic growth in our communities.

Emily Russell: Yeah. I want to talk a bit about—you used the word risk, and you mentioned they’ve reduced the leverage ratio to, I think it was 9 percent. It’s 8 percent now, is that right?

Jill Castilla: That’s correct.

Emily Russell: Oftentimes it feels like when we talk about systemic risk in the banking industry, we are thinking about JPMorgan or Bank of America. But in fact, there are many community banks, and they might be smaller, but they’re not insignificant in any way. How should regulators be approaching the idea of systemic risk among the community banks, especially as they’ve changed the definition of community banks from, what is it, $10 billion to $30 billion in assets, is that right?

Jill Castilla: Yes. And the technical definition of community banks has been by asset size. I define it by: can you call the CEO? Can you get a meeting with the CEO?

Emily Russell: Right.

Jill Castilla: Then congratulations, you’re banking at a community bank. So I think it’s a complex kind of question. Increasing the threshold, I think, was important, because there are larger banks that act as community banks.

Emily Russell: Yeah.

Jill Castilla: They are really integral to the community banks, the banks that they serve. Systemic importance nationally—my little bank, if I fell, doesn’t matter at a system level. I’m not wanting to be rescued by anybody, and certainly no one’s going to come to the rescue. But to my community, even though there are 80 community banks in my town, and we’re the oldest bank in Oklahoma County that’s still operating, started before statehood—when I came to it, it was a troubled institution in 2009. And the calls I would get would be not like, “Are my deposits covered by insurance?”—although some of the questions were about that. It was more of, “We can’t lose Citizens Bank of Edmond, because it’s important to this community. It’s systemically important to Edmond, Oklahoma.”

Emily Russell: Right.

Jill Castilla: And when you think about more isolated communities where that might be the only financial institution in town, the only place you can go to get a small business loan, that’s going to take that risk because they’ve known your family, or they know the work that you did in high school—

Emily Russell: Yeah.

Jill Castilla: —or the troubles that you worked through, the more character-based lending, those are very important to ensure that we have economic prosperity in all corners and nooks and crannies of our country.

Emily Russell: Yeah, absolutely. So you’re saying the community will be impacted.

Jill Castilla: Yeah, the community—and that’s the big risk, is systemically important—

Emily Russell: Yeah.

Jill Castilla: —to that community. But when you think about it, like, if 3,000 community banks are under a billion dollars like mine, if those go away, that does have an impact overall to our economy. If we have everything and it’s only online, and we’re not having coaching of a small business for years until maybe they’re bankable, we lose the opportunity to have economic prosperity for generational kinds of changes in wealth that you would miss out on if those community banks weren’t there.

Emily Russell: Sure. And just talking about everyday Americans, like those in Edmond—David, I’m curious, you have written in the past about how regulations affect everyday Americans. When we’re talking about all of these lofty ideas, or policies in Washington, and how they impact the lives of everyday Americans, can you make that link for us between those regulations and affordability right now?

David Burton: Well, a whole host of federal agencies, including the Securities and Exchange Commission, the three banking agencies, FinCEN, and FINRA, which is technically not a federal agency but has been delegated regulatory authority by Congress, have for decades now been steadily ramping up the complexity and cost of regulation. And it’s having very pronounced negative effects. It means it’s more costly to provide financial services. It means it’s more costly to raise capital. You have to spend boatloads of money on lawyers. It has resulted in us losing about a third of our broker-dealers over the past 20 years. It now means that we have very concentrated investment banking and banking. The largest 10 banks account for about half of the deposits in this country. The small broker-dealers that service entrepreneurs seeking to raise small amounts of capital, by which I mean $5, $10, $20 million—

Emily Russell: Mm-hmm.

David Burton: —now no longer exist. And Morgan Stanley doesn’t care about a guy raising $5 million. And that means we have less competition in the marketplace in almost every industry.

And I think FinCEN is underrated in terms of its negative impact. AML/CFT compliance imposes huge costs on community banks, and the cost of compliance does not increase linearly with size. So it has a disproportionate negative impact on small banks—

Emily Russell: Right.

David Burton: —on credit unions, on small broker-dealers. And FinCEN, every three years, makes it worse. And they’ve been doing that now for 40 years. So the combined effect of these ever-increasing regulatory burdens is showing up in industry concentration, less competition, higher prices, less access to capital throughout the economy.

Emily Russell: And what are some of the more encouraging changes that you’ve seen in the past 20 months that you would point to?

David Burton: Well, I think one of the great, shall we say, misrepresentations is that the Trump administration is hugely deregulatory. It’s not. They were moving very slowly. And the first Trump administration was a little bit better, but literally 67 percent of their major rules occurred in year four, most of those in quarter four, and the Biden administration stopped it. If you really look at the facts, the Trump administration has stopped doing dumb things. In the first Trump administration, they didn’t roll back that much of the Obama-era regulation, let alone earlier rules. A little bit, especially in the energy and environmental area. But if you look at the SEC rulemaking so far, it’s been very limited. And FinCEN has only done one useful thing: they put the kibosh on the beneficial ownership reporting. That was it. Basically, they haven’t done anything else. FINRA hasn’t done anything constructive. Of course, FINRA is an unaccountable black box. So yeah, they’ve stopped, shall we say, making the problem worse—

Emily Russell: Mm-hmm.

David Burton: —but they haven’t done much to make it better. I hold out hope that the SEC will soon start doing important things. The three Republican commissioners there are quite good, but they haven’t actually delivered yet.

Just real quick, on the SEC’s proposal to reduce earnings reporting from quarterly to twice a year, I have mixed feelings about that. Markets function better when there’s good and timely information.

Emily Russell: Mm-hmm.

David Burton: My guess is most companies will continue to report quarterly anyway. But of all the problems we have with the administrative state and financial regulation, that would be very near the bottom of my list, and it’s not clear to me why they chose to prioritize that. Although it’s certainly gotten lots of attention from the media.

Emily Russell: Speaking of the difficulty of changing policies and regulations in Washington—Summer, I want to talk about the CLARITY Act, which, what was it, last week, stalled in the Senate. The SEC is now releasing its own rules in lieu of congressional action to regulate cryptocurrency. Can you talk a bit about what is happening from the CFTC and the SEC on this, and what the Blockchain Association’s feelings are about the direction that we’re going, which is not legislative action but instead administrative action?

Summer Mersinger: Yeah. You know, it was a week ago.

Emily Russell: Yeah.

Summer Mersinger: Feelings-wise, I describe it as a really bad breakup.

Emily Russell: Oh.

Summer Mersinger: You know, we were all really sad, and now people are mad, and—you know, we probably—

Emily Russell: Going through the stages of grief.

Summer Mersinger: Going through the stages of grief. But I do think there’s recognition that there is a lot that the administrative agencies can do. Again, we’ve already seen action from the SEC, with both their crypto regulation but also the innovation exemption.

Emily Russell: Mm-hmm.

Summer Mersinger: And the CFTC has sent a rule to the OMB that will probably be the smart market—

Emily Russell: Um, yeah.

Summer Mersinger: —regulatory framework. So that’s good to see that moving forward. I think what’s going to be difficult is, honestly, the question of durability. I think Hester Peirce said—

Emily Russell: Peirce.

Summer Mersinger: Peirce said, “If you do good things, they stick around,” and I hope that’s right. But I do think there’s going to be a number of legal actions that will probably take place—

Emily Russell: Mm-hmm.

Summer Mersinger: —around some of these. We’re already hearing people talk about it.

Emily Russell: Yeah.

Summer Mersinger: And at the end of the day, you want some certainty for markets, and it’s tough when you are using the regulatory agency to try to build that without statutory backup. It’s not as clear-cut. But I do think Chair Atkins and Chair Selig are doing a great job, and I think we’re going to see a lot of really good policy come out of the two agencies.

Emily Russell: And I’m curious, to give a sense of how much time and energy went into this push legislatively—when did you guys start working on the CLARITY Act?

Summer Mersinger: Well, for me personally, I go back to 2019. I started working on it at the CFTC—

Emily Russell: Oh.

Summer Mersinger: —for former Chairman Heath Tarbert, and I remember the first time we were up on Capitol Hill talking about this, and nobody understood what we were talking about. I don’t even know if we understood—

Emily Russell: It can be a bit tricky.

Summer Mersinger: —what we were talking about.

Emily Russell: Yeah. Yeah.

Summer Mersinger: And so that’s when I started. And I worked very carefully with both the House and the Senate when I was a commissioner as well. I often would go up and do informational discussions with members of Congress—

Emily Russell: Sure.

Summer Mersinger: —trying to explain at least the regulatory side and where there were gaps. And then once I started at the Blockchain Association in June of 2025, right after that, GENIUS was passed, and then the House passed their version of CLARITY—

Emily Russell: Right.

Summer Mersinger: —and then it was all in on the Senate. So it’s consumed a lot of my time at the Blockchain Association.

Emily Russell: I’m sure. I’m sure.

Summer Mersinger: And I feel like it’s consumed a lot of my life, actually. But this is legislation. I kind of always say, it’s hard to do. Once upon a time when I was doing private lobbying, I worked with the songwriters, and after streaming started—

Emily Russell: Mm-hmm.

Summer Mersinger: —there was the question of how do you pay songwriters with streaming music? It took, like, 10 years to get legislation passed to change how they were paid. And so I always kind of use that as our comparison: yes, this didn’t happen, but sometimes these things really do take a long time. And you never know what’s going to throw things off when you are dealing with Capitol Hill. So I’m trying to keep everyone encouraged that this isn’t the end. We—

Emily Russell: You’re playing the long game.

Summer Mersinger: We’re playing the long game. Exactly.

Emily Russell: Sure. Jill, I’m curious if there’s any piece of legislation that would change regulations for community banks that you are particularly excited about. I know that there is the Main Street Capital Access Act that I think has stalled in the Senate. Correct me if I’m wrong. But what is your version of the CLARITY Act?

Jill Castilla: Well, and we’re highly engaged in the CLARITY Act, and we need a market structure bill. I mean, the community banks are innovative. We want to be part of—the blockchain is such a great opportunity for—

Emily Russell: Sure.

Jill Castilla: —small businesses to be able to move money around without having to be charged. Really, fees are very competitive.

Emily Russell: Mm-hmm.

Jill Castilla: There’s not another competitor in the market, so the speed and the cost. Also, our accessibility to the Fed, even from a banking standpoint—we have to go on old rails to do that, which, as we have a 24/7 kind of payments environment, really hampers community banks, because we don’t have that access to liquidity—

Emily Russell: Right.

Jill Castilla: —to be able to support that type of movement, where the economy is going. But there are so many different opportunities. We’ve really seen great movement in the House through Chairman Hill’s leadership and Majority Leader Wa—Walters. Her team—they have really moved legislation through the House, so we’re seeing a lot of great support there to help community banks. Not really—we don’t need subsidies. I mean, I’m like, “Bring on the competition.” I’m not scared. I compete with JPMorgan Chase every day. There’s no fear, and I think that’s true of 3,000 banks like mine. But it’s this weight of regulation, the disparity in the amount of risk that we have at my institution and the level of oversight and reporting that we have to do. That imbalance seems to be getting better.

New bank formation is also something where we’ve seen the innovation sector really be able to benefit from the administration opening up bank charters or trust charters, to be able to facilitate innovation and be able to provide access to the banking environment. But we haven’t seen as many traditional community bank charters, and we have so many millions—I think the last number I saw was 68 million Americans that don’t have a bank in their local community.

Emily Russell: Wow.

Jill Castilla: And so maybe we should be seeing formation of community banks coming back into our localities. So how do we facilitate that? And a lot of the help in getting the acceleration of capital to smaller institutions is in some of these bills.

Emily Russell: Mm-hmm.

Jill Castilla: But I think there’s still work to be done, and I appreciate that everyone—we’re like the original decentralized finance. There’s so much alignment between the crypto community and the community banking community. Our independence, our kind of “leave me alone, I can serve my community, just let me do my thing, and hold me accountable if I do it wrong.” And I think that we need to find more alignment there so that innovation can really happen at the grassroots—

Emily Russell: Sure.

Jill Castilla: —and that we’re not just centered right here in DC as to where action can be taken.

Emily Russell: Yeah. And part of the conversation around making sure that community banks can thrive, or smaller banks can thrive, is mergers and acquisitions, which, my understanding is, Bowman is wanting to make that process easier and faster. Can you speak a little bit about that shift?

Jill Castilla: Yeah. We’ve seen—it’s a lot of uncertainty for investors when you have large banks especially that are merging, and the questions go on for a year and a half or two years—

Emily Russell: Sure.

Jill Castilla: —before a merger can happen. There’s a lot of risk there from a cyber standpoint. You’re losing employees. It’s not good for anyone for that to take a long time. And so she’s really accelerated that process already—

Emily Russell: Mm-hmm.

Jill Castilla: —and has made a commitment to stick with a certain timeframe. I think mergers and acquisitions are important for survivability, but again, independent community banks don’t necessarily need to merge and acquire in order to be sustainable and thrive. And so it’s about making sure we have conditions in place where we have strong competition, where we don’t have to have centralized financial systems, where we can have the strength of the American economy being thousands of community banks dispersed upon our land, and we’re able to retain the ability to keep that going. So: new charters, the ability to be a small bank and stay independent and not—

Emily Russell: Sure.

Jill Castilla: —have to acquire or merge, and then the ability, if you are wanting to scale and merge. A lot of scaling and merging is because once you meet a certain threshold, now you have to run to the next one, because the burden of the regulatory environment becomes so steep that you cannot be economically viable unless you scale rapidly.

Emily Russell: Right.

Jill Castilla: So that really encourages the M&A activity.

Emily Russell: Right. I want to shift a little bit. David, I want to ask you about another change the Trump administration is pushing for, which concerns—sorry—private markets. The Trump administration has encouraged 401(k) accounts to be open to alternative private investments, private equity. And the idea is so that more of the American public can benefit from these investment opportunities. The flip side of that argument is that these are riskier, they’re less liquid. How do you think about that change? Is that something that you were cheerleading for, or how are you feeling about that?

David Burton: I think it’s constructive. I mean, most pension funds invest some of their money in private equity. Until recently, private equity had notably higher returns. That’s going to vary over the years, depending. There is another misrepresentation running around there, that public companies are safe and private companies are risky. This isn’t true. Penny stocks are about the most risky investment you can make, and they’re public companies, right? Private companies can be risky or safe, depending on what kind of company it is, just like public companies. The biggest difference really is that private equity investments are not liquid. There’s not an active secondary market in private securities, and that’s something the SEC should fix. And we’ve been talking to them about it for 20 years; they never do it. They have similar problems with Regulation A securities and crowdfunding securities. But the bottom line is that it’s really a liquidity question, and in a retirement account—

Emily Russell: Mm-hmm.

David Burton: —you shouldn’t be thinking about having to sell it in six months. So I don’t think—

Emily Russell: One would hope. Yeah.

David Burton: That criticism is particularly applicable, and the relative risk question is a question of what kind of company you’re investing in, not whether it’s public or private.

Emily Russell: Jill, you just got me thinking, David, about the state of public markets, and something we think about at Barron’s is what sort of risk of a severe downturn in the markets we might be seeing soon or in the future. Are you concerned at all, Jill, about the impact on your bank and community banks, and even larger banks, if there were to be a big downturn in the equity markets?

Jill Castilla: I mean, we’re always having to monitor what happens in an up and down environment, and how do we shield ourselves from those losses, and do we have adequate capital? Do we have adequate liquidity in those circumstances? And so you forgo your profitability to mitigate those risks. And so that’s something we’re always managing. In our market, we’re starting to see a softening in appraisals. And so now we’ve already shocked our portfolios before as to, if we see a degradation in values, are we exposed? And then we shock that again. As rates go up, how does that impact our borrowers? So we’re always looking at different ways.

But I think it also is not just the economy that can cause a change. We have IRAs in our bank. All the broker-dealers that we serve, they all have IRA sources. Trump accounts, which I think is a great idea—

Emily Russell: Mm-hmm.

Jill Castilla: —is such a great opportunity for young people, for families to save for young people. But to have that centralized all of a sudden into a Goldman Sachs–type environment or Robinhood—

Emily Russell: Right.

Jill Castilla: —we have to think about the impact of that to our bank from a liquidity standpoint, and that first banking relationship not being with your local bank, but being with Goldman Sachs. And so it’s why we’re always trying to look around the corner on the CLARITY Act. It’s really not today, but what if a Walmart stablecoin happens and they’re paying substantial rewards, and what does that do to a local economy if they’re competing and not providing loans, but taking deposits out of the community? So we’re always having to look around the corner, whether it’s an economic downturn or if it’s just a change in the financial system.

Emily Russell: Sure. Looking forward, as we wrap up this discussion and open up to the Q&A, Summer, what are you most encouraged by on the regulatory front? You’ve had a small setback with the CLARITY Act, but what are you looking forward to?

Summer Mersinger: Yeah, I mean, I think what was encouraging is how quickly they were able to act, um—

Emily Russell: The SEC. Yeah.

Summer Mersinger: Yeah. Both the SEC and the CFTC—

Emily Russell: Yeah.

Summer Mersinger: —putting forward a rule to OMB. It just shows that they’re thinking ahead, and that’s very unusual for regulators. They’re usually about five steps back.

Emily Russell: Mm-hmm.

Summer Mersinger: The fact that they’re looking ahead, they are kind of waiting to see the environment and reacting accordingly, I think is really promising. So I’m excited about what the two agencies are able to come up with. I was telling someone the other day, I might be the only person that’s really excited to read this new CFTC rule. So I’ve been waiting for it to get published. But yeah, there’s a lot of interesting stuff that I think they can do using their existing authorities, and the fact that they are moving so quickly is really encouraging. It was two days after—

Emily Russell: Yeah. Yeah. The SEC—

Summer Mersinger: Yes, came out with their proposed rules.

Emily Russell: Very impressive speed. Same question for you, Jill. What are you encouraged by on the regulatory front moving forward?

Jill Castilla: Yeah, I’m really excited. I know we had this report come out about Silicon Valley Bank, kind of a debrief of what happened there.

Emily Russell: Yeah.

Jill Castilla: It’s so interesting to read that first rendition of it, because it talks about how, if it’s just the regulator throwing balls at you and never really thinking about what the real risk is—

Emily Russell: Mm-hmm.

Jill Castilla: —then you’re just not addressing the real issues with an organization, and it can cause a lot of harm, and it also causes a lot of burden to everybody that’s doing the right thing. And so I’m really looking forward to seeing the matchup between Vice Chair for Supervision Bowman’s talking about material risk, which obviously she had an insight into the breakdown in SVB, but now we have, like, collateral to be able to show—

Emily Russell: Mm-hmm.

Jill Castilla: —this is what the breakdown cost us. Whenever we have too much regulation, whenever we are overly nitpicky and not really thinking about material risk, it can have this horrible impact, not only to an organization, but to something that happened broadly that caused a bailout to occur that damaged all institutions in the United States.

Emily Russell: Sure.

Jill Castilla: So I’m excited to see that full report come out, because I think it will further accelerate some deregulatory actions and also help us identify what really matters and focus only on what matters. Match regulation and supervision with risk—

Emily Russell: Mm-hmm.

Jill Castilla: —not just have throwing water on everything.

Emily Russell: Do you know when that report comes out?

Jill Castilla: Well, we just got—I don’t know the timing. Do you know?

Emily Russell: Don’t know. That’s what I’m saying. I’m curious—

Jill Castilla: Yeah. We got the first—

Emily Russell: ’Cause I would also like to know. Like a preview of it.

Jill Castilla: Okay. But it’s open and available, and it’s a very interesting read, seeing the breakdown. It’s nothing really new.

Emily Russell: Uh-huh.

Jill Castilla: But it happened a while ago, so everyone’s wondering, “Well, why is it coming out now?” But the way we’ve talked about it in the media, or just publicly, has changed as to why that organization failed, whenever it really wasn’t a breakdown and, like, a social media scurry on Twitter that caused it. It was a breakdown of an organization that didn’t have effective oversight.

Emily Russell: Mm-hmm.

Jill Castilla: And it had plenty of hands on everything, but the effective things weren’t done. And so I think it’s really timely, especially without the ability to have a community banker in the chair to help influence where regulation occurs, to be able to really do the right things.

Emily Russell: Sure. David, same question for you. What are you looking forward to on the regulatory front that you think is a move in the right direction, that might be coming or is in formation right now?

David Burton: That’s a hard question, because I don’t think you’ll see Congress do anything constructive for quite some time. But in the various agencies, I think you’ll probably see not a whole lot going on, which is better than, you know, a new 300- to 500-page regulation every couple of days—

Emily Russell: Right.

David Burton: —which is what the Biden administration was for a while. But I do hold out significant hope that the Securities and Exchange Commission will start proposing rules that are very positive, and that’s largely because I know and think highly of the three commissioners, and I have to think that they’re doing the hard work of crafting rules that make significant changes and will withstand judicial review. One of the problems with the Trump administration, especially early on, was that they would not comply with the rules governing rulemaking, and they’d lose in court, and by the time the litigation was finished, the first Trump administration was almost over. And so there’s the need for a certain sophistication with respect to how you promulgate rules if they’re going to survive judicial review. And I think the folks that are currently running the Securities and Exchange Commission understand that, and that’s one of the reasons why there hasn’t been a flurry of positive rules yet. But I think there will be.

Emily Russell: Sure. So we’re going to open it up now to the audience. If you have a question, just raise your hand. We’ll come around with mics. Just please state your name and affiliation and speak clearly into the mic so that everyone watching at home and in the room can hear, and just ensure that your questions are in fact stated in the form of a question. Okay. I will be monitoring for online questions, but if anyone in the room has one, we can get started. Over here.

Steven Keith: Thank you. My name is Steven Keith. I’m a retired foreign service officer, and when I was still serving in the foreign service, I was paid to do economic work, so I guess I can claim to be a retired economist. My question is particularly directed at David Burton, although others are welcome to comment on it. You spoke about the various things in terms of regulation and its impact. Correlation and causation are two different things. I don’t necessarily disagree with anything that you said, but you didn’t, at least as far as I could tell, support any of it. Are there any economic studies proving the damage that you assert?

David Burton: Yeah. There’s lots of them. And in the banking area, there’s a tremendous amount of work done by Norbert Michel, who runs the financial center here, and also Charles Calomiris, who you heard from earlier. I unfortunately was stuck in the massive traffic jam that is Washington right now and wasn’t able to attend the first panel. But there’s a tremendous amount of work in the banking area that shows that, in fact, these regulations are increasing financial risks, not reducing them, and having all kinds of other adverse effects. In the securities area, when I was at the Heritage Foundation, I wrote many long papers citing the literature, which I’d be happy to send to you, showing the adverse effect on the number of public companies, on broker-dealers, on entrepreneurial capital formation. These effects are real, they’re large, and they’re well documented. So if you want to chitchat after the panel, I’ll get your email address and send you the papers.

Emily Russell: Great.

Jill Castilla: And you can see it happen practically, just because we’ve seen movement of financial markets outside the financial system. So private credit moved outside the financial system, and like 50 percent, I think, of all the credit is outside of banking now because we’ve had such a harsh regulatory environment.

Steven Keith: Thank you.

Emily Russell: We have one other question in the back.

Mark (Audience Member): Hi. Thank you. My name is Mark, and I have a question around cryptocurrency and whether—it seems to be a lot of aversion to paying interest, if you want to call it that, or other forms of benefits on people that hold crypto, presumably because it would be a risk to the banking system. Deposits would flow out and flow into crypto, and therefore the banks become unstable. Any thoughts on that and where that may go going forward? Do you support that or oppose that?

Summer Mersinger: Yeah, I think—I assume this is the yield debate that we talked a little bit about earlier. But the way I look at it, I actually grew up in a tiny town with two banks. That’s pretty much our Main Street: two banks and a bar.

Emily Russell: That’s a lot of—there you go.

Summer Mersinger: A lot of main streets in America. And I look at it a little bit differently. My dad’s a farmer. He farms, he banks with our community bank. He’s always banked with our community bank. They have his operation loans, his car loans. His ties to that bank are never going to go away. His deposits will always remain there, because they have to, because of all these other products that he’s using. And so for the deposit flight, I wonder if this is really going to happen. Stablecoins are a payment system, and so the reward you’re seeing paid on stablecoins is more to get adoption up, so that US stablecoins will be the dominant stablecoin globally. And that’s really important for a lot of national security reasons. So we’ve got to have some sort of payment program to get people to start using stablecoins more regularly. But do that in a way—I agree, you don’t want to see community banks fail. Again, that was Main Street. If those two banks go down, there’s not much left of my hometown.

So I think what they did at the end of CLARITY, they added kind of a stop switch, or a fail switch, that the Secretary of the Treasury could say, “Okay, wait. I’m seeing deposit flight. We’re going to put a stop here. I’m going to use my regulatory authorities to make sure that we don’t have massive deposit flight.” So I think that was a good move, as far as making sure we don’t get into a situation, if that is in fact the case, where you start to see deposits moving, to have somebody like the Secretary of the Treasury overseeing it. But yeah, I’ve always kind of looked at it a little bit differently: the community bank consumer is maybe not the same person that’s moving on to stablecoins. And again, the stablecoin is a payment. It’s not a tool that you hold for interest. So that’s the way I see it. But I think we probably have a slightly different view of it, but not a huge difference.

Jill Castilla: I think there’s a lot of overlap there.

Summer Mersinger: Yeah.

Jill Castilla: I fully support this mechanism of stablecoin. And I even think that deposits in general, in aggregate, may not change within the system. But it is undeniable that if you’re in a small town and there’s a Walmart that has contracted—they’ve already announced they’re doing this—a stablecoin partnership that’s white-labeled with Walmart, and they’re paying interest now, those deposits are going to go to the biggest banks in the nation, and that liquidity is going to leave that community. Even if the community bank matches or even exceeds, you just can’t—it’s a massive Goliath with these little Davids around there. That liquidity goes out. I don’t know how many economists are in the room, but I think it’s pretty undeniable that the engine of economic growth is that dollar getting lent out and deployed in that community, which causes economic mobility in the community and economic growth. And if it gets put into New York City or somewhere else in the world, that is being siphoned out of that community.

I think other parts of the world that have had stablecoins have required there to be a reserve of liquidity in domestic banks. And I think that if community banks had been at the table—literally, I don’t think we were at the table at all, other than through an association representative—to be able to say, how do we create a solution to what this potentially could be the impact, then I think we’d be at a different place with CLARITY than we are today. Because I think there’s a drive to, like, we want competition, we want accessibility to really fast rails. We’re not averse to competing, but let us be at the table so you understand what happens to our local economy, so we can come up with a practical solution that’s great for everybody.

Emily Russell: Thanks. We have an interesting question from a virtual attendee, who asks, “What are the panel’s thoughts on whether the relatively elevated ages of members of the Senate and House banking committees are behind some of the hesitancy to deal with crypto and other reforms of banking regulations?” It’s a very polite way of phrasing that.

David Burton: I don’t think it has to do with the age of the members of the committee. I mean, the agencies haven’t done a very good job. I’ve followed the SEC a lot closer than the CFTC, and my impression is the CFTC has done at least some constructive things in the area. But the Securities and Exchange Commission has been on the verge of putting out regulations on crypto or digital assets for nearly 20 years, and it’s always going to be next year, for 20 years. And the staff of the SEC is younger than the House Financial Services Committee and the Senate Banking Committee. It’s required. They haven’t done any better, and they don’t have the same political problems either. They don’t have to put together a coalition. They’re just confused.

I mean, the bottom line is, under Gary Gensler, the SEC launched literally hundreds of lawsuits against digital asset companies on an utterly misguided interpretation of what is and is not a security under the Howey test. And they put out a nine-page guide to digital assets that a first-year law student might have been able to put out, and it wasn’t very impressive. And on the central question of what is a common enterprise in the Howey test—are you selling a share in a business, or are you loaning money to a business, a common enterprise?—now you have exactly one sentence. I mean, they’re simply not serious, and I’m sure a lot of people here understand. Hester’s been trying to fix it, but she’s been unable to. And maybe we’ll get it fixed, but it’s not an age thing from the committees. It’s a general lack of understanding in the Washington policy community about how you should regulate digital assets.

Summer Mersinger: I’ll just pick up on that.

Emily Russell: Yeah.

Summer Mersinger: One thing that I think is an unfortunate rule is that the agencies, Congress, they can’t own digital assets. As a commissioner, I couldn’t own digital assets. So I couldn’t be in the market, understanding the market. I had to take information from the stakeholders coming in. And I use the example: the first time I saw crypto trade, because I had asked someone, “Can you just show me on the computer what this trade is? What is happening?” It was Sam Bankman-Fried showing me on FTX.

Emily Russell: Ugh, wow.

Summer Mersinger: So that’s not who I should have been learning from at the time. But I think that’s a mistake. I really do think it would be good to allow—obviously, you want to be mindful of STOCK Act concerns and those things, but just letting even a de minimis amount of activity for government employees or regulators, to understand the market—

Emily Russell: Some exposure would be very helpful.

Jill Castilla: And our bank, it’s interesting, because we were one of the first that allowed our customers to have access to crypto exchanges. Many of them were moving to us whenever larger banks were shutting down their accounts, or they weren’t able to utilize their cards to be able to do those exchanges. And they were older customers.

Emily Russell: Really?

Jill Castilla: So, I mean, this isn’t just a young man’s game. I don’t know what the statistics are, but my customers across demographics are utilizing digital assets.

Emily Russell: Very interesting. In the room, we have a question. I don’t know who has the microphone. Yeah. Okay. Great.

Bill Hagen: Hi, my name’s Bill Hagen. I’m not affiliated with anybody at the moment. I just have a question for Mr. Burton. You said a lot of small broker-dealers were going away. I’m just curious, do you think part of that problem is that more and more registered reps are becoming registered investment advisors, or joining bigger and bigger registered investment advisors to get under that regulatory umbrella and into that nature of business? And also, do you think the SEC is any more capable of regulating the registered investment advisors to prevent any more Bernie Madoffs?

David Burton: In terms of the decline in small broker-dealers, I think the two primary culprits are FINRA and FinCEN. And FinCEN, it’s the anti-money laundering and countering the financing of terrorism rules, which get more burdensome every three or four years just because they can. And there’s been almost no serious cost-benefit analysis about what aspect of that regulatory regime works and what doesn’t. In fact, Norbert Michel and I wrote a paper about, I don’t know, seven or eight years ago that was the first quantitative estimate of the cost of the AML/CFT regime that anyone had done, because nobody cared. But if you talk to small broker-dealers, the AML compliance is a big problem. And if you talk to community banks, it’s a big problem.

FINRA is, for those of you who don’t know, the primary regulator of broker-dealers, not the Securities and Exchange Commission. And the regulatory authority has been delegated to FINRA, which has a budget nearly the size of the SEC and a payroll nearly the size of the SEC, but it’s a 501(c)(3) Delaware not-for-profit corporation controlled by a self-replicating board. It’s not really an SRO, and it’s a black box, and none of the protections that are normally associated with government regarding due process, transparency, the regulatory process exist for FINRA. And I used to get hysterical phone calls from small broker-dealers about how FINRA is crushing them. And they were so afraid of FINRA that they were unwilling to go up and talk to Congress, because they were afraid that FINRA would retaliate against them and shut them down, which they can do. And nobody’s that afraid of the Securities and Exchange Commission. Nobody’s that afraid of the IRS. But they’re that afraid of FINRA, and that’s a serious problem. And so I think those two—one’s a quasi-governmental agency and one’s a part of Treasury—but they basically operate free of any meaningful oversight by Congress, and we need to change that.

Emily Russell: I’ll ask one more question from the virtual attendees. Someone asks: other than putting a policy into law, what are some other factors that make deregulation or pro-competitive policies more durable?

Summer Mersinger: Well, I think what Commissioner Peirce said the other day is, good policy. That’s what makes it durable. Do good things. Just using crypto as an example, with some of the regulatory efforts that we’re looking at, that’s going to put some consumer protections in place that don’t exist. So going back to FTX: segregation of funds. They weren’t registered as anything. They had a money transmitter license, but there was no requirement that they segregate customer funds.

Emily Russell: Mm-hmm.

Summer Mersinger: If you put that in a rule, I don’t see a world where somebody says, “We’re going to roll that back.”

Emily Russell: Mm-hmm.

Summer Mersinger: So if you’re doing the right thing, I think that helps with durability. So where we can use the regulators to put in some good customer protections, I really do think that adds to the durability of the rule, because nobody wants to unwind protections.

Emily Russell: Sure. Jill, do you have anything?

Jill Castilla: Yeah, I think durability, the unwinding, is what we’re most concerned about: whether we’re going to come back in and things are going to be reenacted that have been practicalized under these last two years. And so with that, I think it’s just really important to have engagement from industry so that we have accountability, and ask the questions and go to our delegation, so that in future regimes, if they’re testifying, we’re having really good questions being asked. That’s worked really well with us in previous circumstances. So at least you get it on record: this is why they’re saying that this is being undone, or that something’s being put more into place, which is what we’re probably most fearful of. The durability of the unwinding is really what we’re hoping is occurring.

Emily Russell: Awesome. Okay. We are almost out of time, so I want to thank our panelists and let everyone in the audience know that we are going to do a one-hour break for lunch. You can join us back at 1:15 for the next panel, which is “The American Financial Experiment at 250: What Comes Next,” moderated by Jeb—I’m going to butcher this—Hensarling, who is the economics fellow at Cato. For those joining us in person, lunch will be served here upstairs on the second floor, in the George Yeager Conference Center. So thank you all for joining us in the room and online, and to our panelists for joining. Thank you.

Summer Mersinger, Jill Castilla and David Burton: Thank you.