The U.S. House of Representatives has voted to overturn a controversial Securities and Exchange Commission guidance that has essentially barred banks from offering cryptocurrency custody services to clients. The legislation, introduced as H.J. Res 109, passed the House by a bipartisan 228-182 vote margin despite the White House vowing to veto the measure.

At the center of the debate is the SEC's Staff Accounting Bulletin 121 (SAB 121) issued in April 2022, which requires banks to record any crypto assets held in custody for customers directly on their balance sheets as liabilities. This significantly raises capital requirements and introduces complex accounting obligations not applied to custody of traditional securities or assets.

Republican Rep. Mike Flood, who sponsored the House resolution, argued SAB 121 created an uneven playing field discriminating against banks seeking to custody digital assets compared to other custodial services. "Custodial assets are always considered off-balance sheet," he stated, noting the different treatment specifically for crypto.

The House vote saw support from 207 Republican members along with 21 Democrats crossing the aisle to nullify SAB 121 under the Congressional Review Act granting lawmakers powers to overturn certain federal agency rules and regulations.

However, the White House has firmly pushed back against the legislative effort to rescind SAB 121, with President Biden's administration stating it "strongly opposes" the resolution. An official veto threat cited the guidance as crucial for "protecting investors in crypto markets and safeguarding the broader financial system."

The White House statement claimed limiting the SEC's authority to regulate crypto custody practices at banks would "introduce substantial financial instability and market uncertainty." The Biden administration maintains SAB 121 enables comprehensive oversight as digital assets increasingly intersect with traditional finance.

Caught between competing interests of fostering crypto innovation while mitigating perceived risks, federal lawmakers and regulators continue clashing over optimal policy frameworks for the rapidly evolving cryptocurrency industry.

Traditional banks have largely steered clear of offering crypto services beyond limited investment products and trading due to ambiguous regulation. Several have cited SAB 121 specifically as a prohibitive compliance barrier preventing them from acting as qualified crypto custodians for institutional clients.

Overturning SAB 121 could unlock significant industry growth by allowing banks to offer cryptocurrency custody solutions on more equal terms with other asset classes. This would appeal to institutional investors still hesitant to custody crypto independently due to risks or complexities.

However, the political impasse appears set to continue as the resolution faces an uphill Senate battle before potentially reaching President Biden's desk for the veto pen. The entrenched partisan divide showcases the contentious tug-of-war shaping the future of crypto regulation across different branches of government.