Crypto: The New Shadow Fleet in U.S.-Iran Conflict
Iran has demanded that ships pay tolls for accessing the Strait of Hormuz in cryptocurrency, according to the Financial Times recently. The waterway has become a flashpoint in the U.S. conflict with the Middle Eastern nation, with the U.S. military this week instituting a blockade of Iranian ports. The U.S. also issued new sanctions this week against individuals and companies connected with an Iranian smuggling network. Crypto, including the use of “mixers” to obfuscate the origins of digital assets, plays a key role in money laundering, illicit financing and sanctions evasion. While the crypto toll demand makes its role in geopolitical conflict more explicit, it has long been a feature of illicit cross-border financing networks and a conduit for terrorist funding.
Five Key Things
1. The Latest on Crypto Market Structure
The expected release of the legislative text of the crypto market structure bill this week was delayed, suggesting continued internal deliberation on key provisions like yield, AML, DeFi regulation and ethics. A key element is intensely negotiated language on stablecoin yield proposed by Sens. Thom Tillis (R-NC) and Angela Alsobrooks (D-MD). Tillis said senators “may have to do crypto-palooza,” where he would convene crypto and banking industry representatives on Capitol Hill to gather input on the Senators’ language. “And that could take a little bit of time to get people in the room.” Officials including Treasury Secretary Scott Bessent, White House crypto czar David Sacks have urged the prompt passage of the CLARITY Act legislation in recent weeks. Now that Congress has returned from recess, the bill may receive a markup, though no markup date has been set by the Committee.
- CEA Report. The White House Council of Economic Advisers last week released a report on the potential effects of a stablecoin yield prohibition. Such a ban would increase bank lending by a modest amount, the paper suggests. However, American Bankers Association economists noted that “[t]he live policy concern is not whether prohibiting yield on payment stablecoins would impact bank lending. It is whether allowing yield on payment stablecoins would encourage deposit flight — especially from community banks — thus raising banks’ funding costs and reducing local lending. By focusing on the effects of a prohibition, the CEA paper risks creating a misleading sense of safety by avoiding the much more consequential scenario: yield-paying payment stablecoins scaling quickly.” The CEA paper does not consider what would happen to bank deposits as the stablecoin market grows, ABA writes. Separately, economist Andrew Nigrinis echoed those concerns, warning that stronger stablecoin-driven Treasury demand “is not a free lunch” if it displaces community bank deposits and curtails relationship-based lending to small businesses, farmers and rural communities.
2. Bessent: EO on Banks Collecting Citizenship Data ‘In Process’
Treasury Secretary Scott Bessent said this week that an executive order requiring banks to collect customers’ citizenship information is “in process.” It was not immediately clear whether the order would require banks to collect such data from existing customers or just from new customers. At a CNBC summit, Bessent expanded on the rationale for the action: “Why can unknown foreign nationals come and open a bank account?” he said. “Our bank executives’ job is to know your customer. How do you know your customer if you don’t know if they have legal or illegal status, whether they are a U.S. citizen or green card holder?” Know Your Customer rules require banks to verify customers’ identity, but U.S. banks do not have a specific obligation to verify U.S. citizenship. Bessent told CNBC’s Sara Eisen, “Every other country does it. Every other country. … There should be stricter rules.”
3. Bowman on Basel: Need Time for Transition
At an Institute for International Finance event this week, Federal Reserve Vice Chair for Supervision Michelle Bowman expressed hope that “we’ve struck the right balance” on the recently released Basel proposal. She acknowledged that feedback may vary on the proposal, and described the measure as “very middle of the road,” noting that six of seven Fed governors supported it. Bowman said the proposal will likely be finalized by the end of the year, but noted that “There will need to be some time for transition from the current framework into whatever the next framework will look like.” Bowman also said that forthcoming changes to the stress tests are expected to be completed in late summer or early fall.
4. Does Bank Supervision Have a Culture Problem?
In recent years, bank examiners have focused supervision not just on banks’ balance sheets, but on intangible factors like organizational culture. But supervisory culture also needs a thorough re-examination, according to a new report drawing on former policymaker and industry comments. The report – “Supervisors on Supervision” – calls for greater coherence, less international fragmentation and a common language in bank supervision. The April 2026 version of the report is the culmination of a series of papers, beginning with a stock-take analysis released in late 2025.
- Why These Questions Matter. Supervisory culture affects supervisory outcomes, and “rule-writing and capital provisions cannot compensate for governance and incentive failures, broken feedback loops, or myopic vision.” The report flags the 2023 banking turmoil as a cautionary example of supervisory culture issues. “Supervisory culture — its assumptions, incentives, confidence, and willingness to act — was repeatedly implicated in failures of oversight,” wrote study chair and former Fed supervision chief Randal Quarles and series lead Stephen Scott.
- Looking Inward. Supervisors must be willing to examine their own culture as a matter of good governance, the report argues.
- Comment Takeaways. The final version of the report compiles takeaways from industry comments on the initial stocktake. Industry responses called for “sharper definitions, better evidence, more disciplined discretion, stronger challenge rights, a considered embrace of innovation, and sustained cross-border coordination.”
- Moving Forward: To overcome tensions in the supervisory culture debate, there are several necessary components, including a common grammar to discuss supervision culture.
- Learn More: To download the full report, click here.
5. OCC Eyeing Preemption Actions on Illinois Interchange Law
The OCC plans to issue regulatory actions asserting federal preemption over Illinois’ state law banning interchange fees on sales tax and tips, according to an OMB notice this week. The move would enshrine the OCC’s existing stance on preemption into formal policy, echoing determinations that the OCC issued in late 2025 on preemption of state laws on mortgage escrow interest rate caps. The Illinois law is at the center of ongoing litigation between the banking and retail industries. A U.S. district judge determined in February that Illinois is within its right to regulate the fees, partially rejecting a portion of the law that prohibited banks from sharing certain data; the case is now pending appeal. Limits on interchange have come under legal scrutiny elsewhere in recent years, such as in the Corner Post case, in which a North Dakota truck stop challenged the Federal Reserve’s 2011 rules governing debit interchange fees.
Clarification: The last edition of BPInsights stated that the Federal Reserve’s balance sheet currently and before the global financial crisis are 84 and 24 percent of nominal GDP, respectively. Those percentages are for nominal GDP over a quarter. At an annual rate, the percentages are 21 and 6 percent.
In Case You Missed It
The Crypto Ledger
Here’s the latest in crypto.
- Coinbase Charter Approved. The OCC earlier in April conditionally approved a national trust company charter for Coinbase, “despite significant concerns about whether the bank’s proposed activities are consistent with law,” BPI said in an X post. “National trust company activities are meant to be limited because these institutions are subject to substantially less regulation than full-service banks. For example, national trust bank parent companies are not subject to federal banking agency supervision and may engage in any commercial activities, which undermines the longstanding principle that banking and commerce should be separate. We will closely review the approval to determine if the OCC followed the law.”
- Crypto Scams and the Tools to Launch Them: Just an App Download Away. Xinbi Guarantee, a Chinese-language marketplace offering money laundering services for crypto scammers and tools for human trafficking, has remained available on messaging app Telegram despite flags to the platform from crypto crime investigators and investigative journalists. “Despite WIRED and crypto crime researchers repeatedly pointing out that blatantly criminal activity to Telegram, the company has since allowed Xinbi Guarantee to grow into the biggest black market on the internet, one that’s facilitated a staggering $21 billion in total transactions,” WIRED reported this week. Meanwhile, a clone mimicking the Ledger Live app crypto wallet app “slipped onto Apple’s App Store, draining millions from dozens of victims across multiple blockchains in a weeklong phishing campaign,” according to CoinDesk.
- Kraken Files for IPO. Crypto exchange Kraken, which recently received a limited Federal Reserve master account, has filed for a U.S. initial public offering, according to CNBC.
- Fed Nominee Warsh Discloses Crypto Holdings. In a financial disclosure required for the confirmation process, Fed chair nominee Kevin Warsh disclosed holdings that include investments in at least 20 crypto-linked entities. Those include decentralized derivatives trading exchange dYdX, decentralized exchange protocol Lighter, venture capital firm Polychain, NFT-focused company Dapper Labs, as well as Solana and Optimism. Warsh also has investments in lesser-known crypto-related startups like Eulith, Lemon Cash, OnJuno, and Ridian, according to the ethics report.
- Binance Compliance Officials Head for the Exits. Crypto exchange Binance, which pleaded guilty to U.S. sanctions and AML violations in recent years, has experienced an exodus of senior compliance staff, according to Bloomberg. Chief Compliance Officer Noah Perlman is seeking to exit the firm and has begun discussions with management about leaving. This follows the departure of other senior compliance staff, including Peter Van Logtenstein, Inga Petrauskaitė, Erin Fracolli, Jarek Jakubcek, and Alex Côté. Binance recently came under scrutiny over transactions on its network linked to Iranian evasion of U.S. sanctions.
- Circle Failed to Freeze Funds Drained in Hack, Suit Says. Circle faces a proposed class action lawsuit from a Missouri customer who accused the stablecoin issuer of failing to intervene and freeze assets as hackers drained an estimated $280 million in digital assets from crypto project Drift Protocol.
- Who is Satoshi? New York Times reporter John Carreyrou’s quest to unmask Satoshi Nakamoto, the pseudonymous creator of Bitcoin, led him to computer scientist Adam Back.
The Fed’s Market Shock Methodology: Largely Coherent, But Containing One Fatal (But Correctible) Flaw
The Federal Reserve has released extensive details of its Global Market Shock, a component of the annual bank stress tests that helps determine capital requirements for banks with significant trading activity. While the overall modeling framework is sound and coherent, one step in the methodology has a fatal but correctible flaw: the selection process for the primary risk factor shocks, which essentially determines the entire GMS, is subject to no objective or analytically-based constraints and no meaningful regulatory constraints.
What is the GMS? The GMS is a trading book risk stress test in which financial quantities, such as equity prices or credit spreads, suddenly and violently move and markets become totally illiquid; thus, banks cannot trade or hedge their portfolios as asset prices violently move against them. The losses that a bank computes from running the GMS are incorporated into its annual capital requirement.
Why It Matters: A small number of shocks to five key financial markets are fed into the overall GMS model, which then produces the large number of shocks to all remaining risk factors. However, there is no empirical method or theory to guide selection of the primary risk factor shocks, and small changes in assumptions on primary shocks can generate bigger changes elsewhere in the GMS.
What This Note Shows: A new BPI research note demonstrates how the GMS methodology works, implementing it for a credit example to show how arbitrarily small changes in the selection of the primary variable shocks can produce large changes in the GMS credit spread shocks. The note discusses how the GMS methodology could be improved to ensure greater objectivity and robustness.
Recommendations: The Fed should publish its reasoning around the selection of the primary shocks, including the scenario narrative, before each stress test exercise and explain how its choices are related to the narrative, subject to public comment. Guardrails around GMS severity are particularly important as the banking agencies consider the combined picture of the GMS and the Basel market risk capital requirement to eliminate overcapitalization across the framework.
Bottom Line: The Fed needs to improve the justification, transparency and governance of the small number of choices the Fed makes that essentially determine the severity of the GMS.
AML Updates, FCC Action: Recent BPI Updates
BPI released several statements over the preceding weeks. Here’s a quick roundup.
- The Risks of Fintech Fed Accounts. BPI’s Paige Pidano Paridon published an Open Banker op-ed explaining the risks of fintechs accessing the Fed’s payment rails directly through master accounts. Read it here.
- AML Changes. BPI commented on the Treasury Department’s proposed updates to Bank Secrecy Act rules. “Importantly, the proposal supports a forward-looking approach that supports responsible innovation, strengthening the detection and disruption of money laundering and terrorist financing activity in today’s evolving financial landscape.”
- FCC Know Your Customer. The FCC proposed a new rule aimed at preventing criminals from exploiting U.S. telecom networks. BPI expressed support in a statement. In related news, the FCC recently fined a Florida telecom provider $4.5 million for allegedly facilitating bank impersonation scam calls.
Traversing the Pond
Here’s the latest in international banking policy. Global financial policymakers converged on Washington this week for the IMF-World Bank spring meetings.
- Topline Concerns. War in Iran and risks from artificial intelligence models emerged as IMF concerns in discussions about financial stability risks. This week, media reports noted that European Central Bank regulators will query banks about cyber risks related to Anthropic’s Mythos AI model, following similar inquiries in the U.S. and UK.
- Incoming PRA Chief: No Plan for Further Ringfencing Reforms. Katharine Braddick, the incoming head of Britain’s Prudential Regulation Authority, indicated she doesn’t envision any further reforms to the ring-fencing system beyond the review of the framework currently underway by the UK government. “I’ve observed that the government has established it continues to want a ring fence, and that it wants that ring fence to be optimised for efficiency,” Braddick told lawmakers this week. “That seems to me to be what the PRA is doing, so I don’t have anything to add to that. It seems to me that the matter is settled.” She suggested lessons could be learned from the ECB’s recently announced review of its approach to bank supervision. Braddick will assume the role on July 1.
- ECB Backs Plan to Consolidate Crypto Supervision Under EU Markets Regulator. The ECB has expressed support for a European Commission plan to shift supervision of crypto service providers from national regulators to ESMA, the bloc’s markets regulator. The central bank indicated this would improve consistency in crypto oversight across the EU. The proposal now heads into negotiations between EU governments and the European Parliament.
- Fraud Accountability in Focus in Canada. The Canadian government recently launched a 45-question consultation on its National Anti-Fraud Strategy. The consultation seeks feedback on three initial measures for the strategy: Supporting law enforcement’s ability to combat fraud, strengthening public awareness and establishing a comprehensive Multi-Sector Anti-Fraud Framework. The framework would introduce new and enhanced obligations for federally regulated financial institutions, telecommunications service providers, and digital platforms. Organizations could be required to take fraud prevention measures specific to their industry. On liability, the framework states: “In the event an organization’s investigation of a complaint determines that it did not fulfill its Framework obligations, and that an individual suffered financial harm as a result, organizations could be required to make the individual whole, either solely by a single organization or, in the case where multiple organizations have not met their obligations, the individual could be made whole through an arrangement between organizations that apportions blame proportionate to the fault of the implicated organizations (for example, a text from a known fraudster leads to an individual making an electronic funds transfer payment to the fraudster).”
What to Watch Next Week
- The Senate Banking Committee holds a nomination hearing for Fed chair nominee Kevin Warsh on Tuesday.
- Comments are due Monday on the OCC’s revised supervisory appeals framework.
- House Financial Services Subcommittee on National Security, Illicit Finance and International Financial Institutions holds a hearing Wednesday on the effectiveness of U.S. sanctions programs.
Member News
Synchrony Recognized as #1 Best Company to Work For in the U.S.
Synchrony has been named the No. 1 Best Company to Work For in the United States for 2026 by Great Place To Work and Fortune. This ranking, based on employee feedback, is a significant climb from its No. 37 ranking in 2021. This recognition highlights Synchrony’s high-trust culture as a primary driver for both business performance and technological adoption.
BNY Launches Homeowner Program Including Down Payment Assistance for Eligible U.S. Employees
BNY recently announced the launch of a new homeowner program for U.S.-based employees to help them navigate the journey to homeownership and address affordability pressures. The program combines education, access to mortgage benefits and BNY-funded down payment assistance. Eligible U.S. employees with qualifying compensation of $100,000 or less annually may qualify for $6,500 in down payment assistance to be used toward the purchase of their first home. All U.S. employees will have access to on-demand digital education and live seminars, as well as additional special mortgage benefits.
BPI Job Bank
Upcoming Events
- 4/21/2026: Senate Banking Committee Hearing on the Nomination of Kevin Warsh to be a Member and Chairman of the Board of Governors of the Federal Reserve System
- 4/21/2026: House Homeland Security Subcommittee on Border Security and Enforcement and the Subcommittee on Cybersecurity and Infrastructure Protection: “Online Scams, Crypto Fraud, and Digital Extortion: An Examination of How Transnational Criminal Networks Target Americans”
- 4/21/2026: Brookings Institution event with Fed Governor Christopher Waller on “Transforming the Fed’s operations for the 21st century”
- 4/22/2026: House Financial Services Subcommittee on National Security, Illicit Finance and International Financial Institutions hearing on Effectiveness of U.S. Sanctions Programs
- 4/22/2026: House Financial Services Subcommittee on Housing and Insurance hearing on Reinsurance and Credit Risk Transfers
- 4/28/2026: House Financial Services Committee hearing: “Evaluating the Impact of Capital Proposals on Economic Growth and American Communities”
- 4/29/2026: House Financial Services Task Force on Monetary Policy, Treasury Market Resilience and Economic Prosperity hearing on Derivatives and the Treasury Market
Clarification: This edition of BPInsights stated that the Federal Reserve’s balance sheet currently and before the global financial crisis are 84 and 24 percent of nominal GDP, respectively. Those percentages are for nominal GDP over a quarter. At an annual rate, the percentages are 21 and 6 percent.
