The Senate advanced a bill earlier this week to establish a regulatory framework for stablecoin issuers.
The bill, which offers a path for banks to issue payment stablecoins, would establish a regulatory framework for stablecoin reserves, risk management and reporting. Under the law, stablecoin issuers would be required to keep reserves backing their tokens. The bill also defines the status of stablecoins under securities law, and would place issuers under the supervision of the Bank Secrecy Act.
The bill had faced some opposition from Democrats who said President Donald Trump had a conflict of interest due to his family’s holding of cryptocurrencies, but 16 Democrats ended up supporting it, including Sens. Adam Schiff (D-Calif.) and Cory Booker (D-N.J.). Trump-backed crypto firm World Liberty Financial issued stablecoin USD1 in March.
The bill still must pass the House of Representatives. The bill is being considered as the nation’s largest banks, including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and other large commercial banks are discussing teaming up to issue a joint stablecoin to ward off increasing competition from the cryptocurrency industry, according to the Wall Street Journal.
Banking trade groups have expressed concern over the similarity of stablecoins to commercial bank money. In a letter to Congress, the American Bankers Association and Independent Community Bankers of America have called on the House Financial Services Committee to ensure the stablecoin framework doesn’t disintermediate the banking industry.
“If nonbank payment stablecoins scale, it is reasonable to expect the same dynamic to occur — an outflow of funds from bank deposits to the reserves backing these stablecoins,” the ABA wrote. “This would be similar to the outflow experienced with the development of money market mutual funds.”
ICBA President and CEO Rebeca Romero Rainey called on lawmakers to ensure nonbanks cannot secure Federal Reserve Master Accounts or keep their reserves in an account at the Federal Reserve. Romero Rainey also urged lawmakers to ensure large tech companies and other non-financial firms don’t dominate the payments space.
She also called on Congress to strengthen the ban on yield-bearing stablecoins to ensure retail deposits don’t migrate to stablecoins. “The activities of stablecoin issuers must also be limited to avoid an open-ended grant of authority that could allow issuers to further expand into bank activities, putting consumers and the safety and soundness of our financial system at risk,” Romero Rainey added.