Behind closed doors, the Treasury Department is devising new crypto rules.Credit…Stefani Reynolds for The New York Times
Making the case for stablecoins
Financial regulators are racing to regulate stablecoins. These digital currencies pegged to a stable asset like the dollar are used in crypto trading, banking and decentralized finance, addressing the problem of price volatility that plagues Bitcoin and others. Stablecoins have become an important bridge between digital currencies and the traditional financial system.
But despite their name, stablecoins may be shaky. The urgency among regulators to rein in the industry has, in turn, generated a flurry of crypto industry lobbying all over Washington, Eric Lipton, Jeanna Smialek and DealBook’s Ephrat Livni report.
From boom to bank run? In their short history, lightly regulated stablecoin issuers have shown that they don’t always have the cash reserves they claim. Tether, the company behind the most popular stablecoin, settled an investigation by the New York attorney general this year that alleged that it had obscured what it held in reserve. Officials fear a digital-era bank run may loom if new rules aren’t created soon for the booming stablecoin sector.
“Regulators really start to care more when risks get greater for society,” said Jeremy Allaire, the C.E.O. of Circle, a payments and digital currency company that helped create the fast-growing stablecoin USD Coin with the crypto exchange Coinbase. Collectively, dollar-tied stablecoins have jumped from $30 billion in circulation in January to about $125 billion as of mid-September.
Executives are pushing their perspectives. Ahead of a Treasury Department report on stablecoins expected this fall, crypto businesses have in recent weeks held dozens of meetings with cabinet members, White House staff members, federal lawmakers and financial regulators. Tight regulations could drive innovation abroad, hamper financial inclusion, risk the dollar’s primacy and kill the promise of digital finance, the industry argues. And each company is advancing a view on regulation that, if embraced, would put them ahead of the competition.
“If we think back on the 20th century, first you had key innovations like aviation or automobiles,” said Tomicah Tillemann, a onetime aide to Joe Biden when Mr. Biden was a senator but who now works for Andreessen Horowitz, the venture capital firm that’s a major crypto investor. “And then you have investments in regulatory frameworks that helped to bring the benefits of those technologies to larger numbers of people.”
In other crypto news, government agencies in China today reiterated that all cryptocurrency-related activities are illegal in the country, vowing harsher crackdowns. Prices are falling.
HERE’S WHAT’S HAPPENING
A government cash crunch is weeks away. In a report today, the Bipartisan Policy Center said that the U.S. government could run out of cash and start missing payments on things like Social Security checks as soon as Oct. 15, but no later than Nov. 4. The White House has started to advise federal agencies to prepare for the first government shutdown since 2019.
Workers in risky jobs can also get a coronavirus booster shot, the C.D.C. director says. Dr. Rochelle Walensky overruled her agency’s advice by recommending an additional Pfizer vaccine dose for health care workers, teachers and others whose jobs put them at increased risk. The agency had recommended boosters only for people over 65 and those with underlying medical conditions.
New York City sets new rules for delivery workers. The first-of-its-kind legislation requires app-based delivery companies like Grubhub to disclose their tipping policies, gives delivery workers more control over where they work and requires restaurant owners to make bathrooms available to delivery workers.
The S.E.C. flexes its muscles on market abuse. The commission in the past week has charged 14 individuals, across eight different cases, of multimillion-dollar frauds. Yesterday, a former Oppenheimer Funds trader was charged with placing more than 3,000 illegal trades, generating $8.5 million in gains, in a “front running” scheme.
Delta Air Lines calls for a national “no fly” list of unruly passengers. The company said in a memo to other airlines that it had banned 1,600 people, and it called for carriers to combine their internal lists. A congressional panel yesterday heard that the F.A.A. had logged 4,284 “unruly passenger reports” since January, with about three-quarters related to mask wearing.
What’s going on at Evergrande?
Evergrande, the beleaguered Chinese property developer, left investors wondering yesterday about the fate of an $83 million interest payment due on a dollar-denominated bond. One bondholder told DealBook they had not been paid, but the covenants provide a 30-day grace period before a default.
Shares of Evergrande dropped more than 10 percent today, but they are still up on recent lows. Global markets are also giving back some, but not all, of their recent gains. How worried should investors be about Evergrande’s potential collapse? Here’s a refresher on where we are and what might happen next.
How did Evergrande get so big? The company’s billionaire founder, Xu Jiayin, is affiliated with the Chinese Communist Party, most likely giving creditors more confidence to keep lending money as Evergrande rode the country’s epic property boom. Eventually, though, Evergrande amassed more debt — some $300 billion — than it could seemingly pay back. Now, Chinese regulators are cracking down on the aggressive borrowing habits of developers as China’s property market cools.
Could its troubles hurt the Chinese economy? A messy restructuring or default could hit confidence, drag down property prices and dent household wealth. It could also make it harder for other Chinese companies to finance their businesses with foreign investments. Avoiding that fate and containing the fallout could force China to backstop Evergrande, directly or indirectly.
How exposed are international investors? Ralph Hamers, the C.E.O. of UBS, said Evergrande’s troubles had “not been keeping me up at night.” (UBS is an Evergrande bondholder, but the bank’s direct exposure is “immaterial,” Hamers said.) Noel Quinn, the C.E.O. of HSBC, also an Evergrande bondholder, said the situation was “concerning” but that the bank hadn’t changed its approach to commercial real estate in China. On Wednesday, the Fed chair, Jay Powell, described Evergrande’s troubles as “particular to China.”
“The name of the game for these old guys is to show they are like her.”
— The Times’s Christopher Schuetze on how the two leading candidates to become Germany’s next chancellor, Armin Laschet and Olaf Scholz, have pitched themselves to voters ahead of Sunday’s election. Angela Merkel is stepping down after 16 years, and much is at stake for the next leader of Europe’s largest economy. Listen to “The Daily” for more on Germany after Merkel, and here’s what else you need to know about the vote.
A push to keep annual meetings virtual
Last year, roughly 2,000 public companies in the U.S. held their annual shareholders meetings virtually, according to Broadridge Financial Solutions. That was up from about 300 in 2019. Now, a group of shareholder activists are pushing companies to keep those meetings virtual, or add a remote option, permanently. They are having some success.
This week, the S.E.C. ruled that two companies, Brinker International and Campbell Soup, had to allow a shareholder vote on whether the remote option for meetings would continue. The companies had asked the S.E.C. to allow them to exclude the proposals at their upcoming meetings. After the ruling, Brinker decided to make its meeting open to remote attendees. Campbell will hold a vote on the matter at its next meeting.
Shareholder meetings have traditionally been in-person affairs. Companies generally prefer that format because it limits attendees — and with it questions board members might face. Shareholder advocates have long said that virtual meetings level the playing field for smaller investors who might not have the resources to travel to a meeting.
Virtual meetings “fundamentally change the scope of shareholder engagement and accessibility,” Matthew Prescott, a shareholder advocate and senior director at the Humane Society, told DealBook. His group sponsored the proposals about virtual meetings at Brinker and Campbell.
Shareholders have long had the ability to vote remotely before a meeting. A study this year found that meetings held virtually didn’t tend to generate more shareholder engagement than in-person meetings. “These shareholder proposals will not garner any meaningful support,” said Douglas Chia, a corporate governance expert and the author of the study.
Weekend reading: Maximum resiliency
The pandemic hasn’t changed everything about how we live and work, but it has changed a lot. And there is more change to come, argues the former F.D.A. commissioner Dr. Scott Gottlieb in his new book, “Uncontrolled Spread.” DealBook spoke to Dr. Gottlieb, who is a Pfizer board member, about doing business in the new world that Covid is creating. The interview has been edited and condensed.
DealBook: What does the previous pandemic tell us about the future after this one?
Dr. Gottlieb: The 1918 flu pandemic was an inflection point in history. Very clearly, this pandemic has changed the course of history. In terms of culture and society, it’s early to say what the effects will be. But Covid has exposed the vulnerabilities in many aspects of society — essential workers, people with lower incomes, older populations and minorities. We’ll be forced to change.
How will workplaces change?
A workplace needs to be made impervious to viral threats. There are no clear lines demarcating phases, but at some point, Covid will become a persistent threat, like the flu.We need to think about de-densifying spaces, better airflow, changing commutes and businesses voluntarily requiring vaccination.
What about conferences?
Events will have to be moved outdoors and held in specific seasons. Conferences could become more bespoke, and there will be hybrid approaches, both live and virtual.
How else will our thinking change, in the big picture?
We’ll have to look systematically at our entire system of government and business, the way we operate in the world, how we evaluate risks globally and, from that, create a new framework based on a need for preparedness. We will have to think about maximum resiliency versus maximum efficiency, taking a view of public health as a priority — an economic and national security issue.
THE SPEED READ
Barry Diller’s IAC is reportedly in talks to buy the magazine publisher Meredith for $2.5 billion. (WSJ)
Daimler is teaming up with Stellantis to produce battery cells at new gigafactories in France and Germany. (FT)
Vitalize is the latest venture fund to start an angel investing program for non-accredited investors. (Twitter)
Gorillas, a European grocery delivery start-up, raised funds at a $3 billion valuation. (The Information)
New federal flood insurance rules that reflect the real risks of climate change will make the premiums for waterfront homes soar. (NYT)
EQT, the largest listed private equity firm in Europe, is being investigated for market abuse in Sweden. (Bloomberg)
The F.E.C. rejected complaints about election interference made by Representative Matt Gaetz and former President Donald Trump against Twitter and Snapchat. (Insider)
Best of the rest
The wealth gap between Black and white Americans is so enormous that only reparations can fix it, an economist argues. (NYT)
“When You ‘Ask App Not to Track,’ Some iPhone Apps Keep Snooping Anyway.” (WaPo)
A memoir from a well-connected businessman in China gives a rare insight into the interplay between money and power in the country. (NYT)
Rihanna, the pop star turned fashion mogul, on becoming a billionaire. (NYT)
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