10/23/2019 - An Examination of Facebook and Its Impact on the Financial... (EventID=110136)

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Wednesday, October 23, 2019 (10:00 AM) --Hearing: " An Examination of Facebook and Its Impact on the Financial Services and Housing Sectors" Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/FinancialDems/ Follow us on Twitter: https://twitter.com/FSCDems ------- This is a one-panel hearing with the following witness: • Mark Zuckerberg, Chairman and Chief Executive Officer, Facebook Background Libra and Calibra On June 18, 2019, Facebook announced its plans to develop a new cryptocurrency, called Libra, and a digital wallet to store this cryptocurrency, called Calibra. Libra will be built on blockchain, backed by a reserve of assets, and governed by the Libra Association. The Libra Association (“Association”), which, at that time, was comprised of Facebook and 27 other members, is an independent, not-for-profit organization headquartered in Geneva, Switzerland. Its members will verify Libra transactions within the Libra blockchain. Facebook hopes to have recruited over 100 firms into the Association by the target launch date of early 2020. According to Facebook’s white paper on Libra, Association transactions would be “fully backed” by bank deposits and short-term government securities that will be held in the Libra Reserve. New Libra tokens would only be created when certain authorized resellers purchase them from the Association. Libra tokens could only be destroyed when authorized sellers sell them back to the Association in exchange for the underlying assets. The interest from the assets in the Reserve would fund operating expenses and be used to pay dividends to investors in the “Libra Investment Token.” Facebook intends to sell Libra Investment Tokens to members of the Association and other investors to fund its startup costs. Calibra, a Facebook subsidiary, will operate a digital wallet for the Association. The wallet will be available in 2020 through Facebook Messenger, Whatsapp, and as a standalone internet application available on smartphones. Facebook plans to expand the use of Calibra to other services like bill pay. As the first step in the Congressional process, on July 17, 2019, the Committee held a hearing to hear directly from the architect of this project, David Marcus, the Chief Executive Officer of Calibra, as well as, other cryptocurrency experts. As discussed during that hearing and in the accompanying materials, Facebook’s plans have serious implications for investors, consumers, data privacy, cybersecurity, systemic risks, monetary policy, and national security.3 Moreover, as part of the hearing, the Independent Community Bankers of America’s (“ICBA”) submitted a letter to the Committee, writing, “The proposed creation of Libra, if allowed to proceed, would be a significant and irreversible development that would alter the global financial landscape.” ICBA also noted its support for a moratorium on the implementation of Libra and expressed concerns about financial stability, given that Libra could be prone to bank-like runs without any comparable deposit insurance system. U.S. regulators have also raised concerns with Libra. According to Federal Reserve Board Chairman Jerome Powell, “Libra raises many serious concerns regarding privacy, money laundering, consumer protection, and financial stability.” Chairman Powell stated that the project “cannot go forward” without addressing those concerns. President Trump and Treasury Secretary Mnuchin raised similar concerns. Likewise, Federal Reserve Board Governor Lael Brainard has stated that “there are likely to be financial stability risks for a stablecoin network with global reach. If not managed effectively, liquidity, credit, market, or operational risks—alone or in combination—could trigger a loss of confidence and a classic run.” Governor Brainard also noted that “[t]he potential for risks and spillovers could be amplified by potential ambiguity surrounding the ability of official authorities to provide oversight and backstop liquidity and to collaborate across borders.” Since the Committee’s July hearing, international regulators have expressed analogous concerns surrounding Facebook’s plans with Libra and Calibra. In August, regulators from France and Germany both agreed to block Libra from their countries; in a joint statement, the two governments stated that “no private company can claim monetary power, which is inherent to the sovereignty of nations.” The G-7 and the Financial Stability Board (“FSB”) called for more scrutiny and high regulatory standards for stablecoins, such as Libra, particularly to protect consumers and ensure cryptocurrencies are not used to launder money or fund terrorism. Lastly, on October 4 2019, Paypal announced its “decision to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities as we...