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House Republicans are getting headlines this week for the month of hearings they’re launching to keep climate and social goals out of investing. You might have missed that a similar fight is unfolding in the Senate — one that’s focused on banks and might have a near-term impact on policy.

Let’s start with one of MM’s newest recurring characters: Sen.J.D. Vance.

As our Eleanor Mueller reported first on Thursday, the Ohio Republican has a new bill that would try to shield banks from regulatory pressure to cut off customers like crypto firms, gun manufacturers and oil and gas companies. It would do so by prohibiting regulators from invoking “reputational risk” when they take action against lenders.

It reflects a long-standing allegation on the right — triggered by the defunct, Obama-era anti-fraud initiative “Operation Choke Point” — that regulators discourage banks from serving customers that are politically unfavorable to the left. The crypto world recently joined the cause after it became an obvious target for scrutiny because of widespread mismanagement and alleged fraud by industry leaders.

House Republicans haven’t tackled the issue yet as part of their “ESG month,” but will likely get to in the coming weeks, with a potential vote on a bill that would deter lenders from cutting off the same kinds of customers that Vance is looking to protect.

A backlash against these kinds of policies is playing out in the Senate, and it threatens to upend a bill that would provide legal protections for banks that serve the cannabis industry.

Eleanor and Natalie Fertig have a new story looking at concerns raised by Sen. Jack Reed (D-R.I.) about a section of the cannabis bill that, like Vance’s new legislation, would make it harder for regulators to pressure banks to cut ties with certain customers for reasons of reputational risk. The provision has been attached to the bill for years at the behest of Republicans. Changing or cutting it may have an impact on the coalition that’s grown up around the proposal.

The clash is instructive of how future culture war issues will likely play out in banking policy.

Making it harder for banks to drop certain customers could also leave lenders exposed to risks from criminal activity. In the case of the cannabis bill provision that’s being contested, there’s an exception for national security concerns but not fraud.

Consumer advocates are urging lawmakers to rethink the measure, citing the rise in mortgage wire fraud and Zelle scams.

“Operation Choke Point had a sexy name and it gave the right wing all sorts of fodder for ‘the government’s coming after your guns,’” National Consumer Law Center Associate Director Lauren Saunders told MM. “None of that was ever true. Operation Choke Point ended years ago.”

“This is not about going after legal businesses. It’s about going after accounts being used unlawfully.”

Happy Friday — Thanks for reading this week. We’ll be back Monday. Until then, feel free to keep in touch: Zach Warmbrodt, Sam Sutton.

House Financial Services holds a subcommittee hearing on how ESG mandates impact insurance and housing at 9 a.m.

Exclusive: House GOP rebukes state insurance officials — House Republicans tend to be allies of state insurance regulators, but the relationship is starting to unravel.

Eight Financial Services Committee Republicans led by Rep. Warren Davidson of Ohio are urging the National Association of Insurance Commissioners to withdraw a proposal that would have the standard-setting group potentially challenge the third-party credit ratings of securities held by insurers. The ratings impact insurers’ capital requirements.

The lawmakers warn that the planned policy could turn the NAIC’s Securities Valuation Office into a competitor with private-sector credit ratings firms and raise conflict-of-interest questions because of fees it would take for designating securities.

“The state-based regulatory framework continues to be a time-tested model of success,” they said. “We cannot risk upending this framework by opening the door to SVO staff-driven actions that could ultimately hurt competition, imperil the capital adequacy of NAIC regulated entities, and make it harder for [insurers] … to meet their obligations.”

Lots o’ crypto news — Let’s take a quick spin through the last 24 hours of major crypto policy developments.

— A court cast doubt on the SEC’s crypto crackdown — A federal judge ruled Thursday that Ripple Labs did not break securities laws in selling its cryptocurrency token to the public. Our Declan Harty reports that the decision, one of the most definitive yet to push back on the SEC’s crypto powers, raises new questions about whether digital tokens trading on exchanges are actually investment contracts that fall under SEC authority, as the agency has claimed.

— Another crypto exec was arrested on fraud charges — Declan reports that U.S. authorities arrested former Celsius Network CEO Alex Mashinsky. They alleged that he led a scheme to defraud customers while inflating the price of Celsius’s token, CEL, as he dumped his own holdings.

— House Republicans are trying to lure Democrats on a stablecoin bill — Eleanor scoops that House Financial Services Republicans are offering rank-and-file Democrats the chance to make substantive changes to their stablecoin regulation bill in hopes of winning bipartisan support, and may postpone plans to vote on it next Wednesday in part to secure buy-in.

“I’m feeling good about stablecoins,” said Rep. Gregory Meeks of New York, a senior committee Democrat. “We’ve made tremendous progress there.”

— House Agriculture is nearing a vote on its crypto bill — House Ag Chair G.T. Thompson (R-Pa.) told Eleanor he wants to hold a vote before August recess on a bill that would give the CFTC new authority to police crypto. It’s part of a package Thompson negotiated with House Financial Services Chair Patrick McHenry (R-N.C.), whose committee will handle a piece dealing with the SEC’s powers.

Thompson said his committee has a few things to refine, including securing additional resources for the CFTC.

Bullard is out — Sam reports that St. Louis Fed President Jim Bullard stepped down on Thursday after taking a position to lead Purdue University’s business school. Bullard, an influential voice among inflation hawks, served in the role for 15 years.

St. Louis Fed Chief Operating Officer Kathleen O’Neill Paese took over Bullard’s duties. Board Chair Jim McKelvey will lead the search for a permanent replacement.

Bullock is in — Australia appointed Michele Bullock as its next central bank governor, replacing Philip Lowe, according to Reuters.

New FinCEN chief — Katy O’Donnell reports that Andrea Gacki will be the next director of the Treasury Department’s Financial Crimes Enforcement Network, which is tasked with combating money laundering. She has served as the director of Treasury’s Office of Foreign Assets Control since 2018 and as acting undersecretary for terrorism and financial intelligence for nearly a year.

SBA IG says agency ‘mistaken’ in dispute over fraud numbers — SBA inspector general Hannibal “Mike” Ware told House Small Business Thursday he is “super confident” in his estimate that the SBA doled out $200 billion in potentially fraudulent Covid relief, despite the SBA countering that it may have been closer to $36 billion, Jasper Goodman reports.

“SBA is mistaken, and I think they know that,” Ware said. “We are the independent watchdog. We have demonstrated that throughout the pandemic and long before that. … Secondly, we have access to datasets that they didn’t have access to.”

Republicans press proxy adviser ISS on voting policy — House Financial Services GOP Reps. John Rose, Pete Sessions, Ralph Norman and Scott Fitzgerald urged proxy advisory firm ISS in a letter to find new branding for the “board-aligned voting policy” it offers investors. They cited concerns that it’s not a true “vote with management” policy. ISS, which issues recommendations to big investors for how to vote on public company matters, is facing intense scrutiny as part of committee Republicans’ “ESG month.”