Stablecoin issuance is a monetary exercise comparable to what regulated banks do and should be supervised accordingly to ensure financial stability and consumer protection.
Stablecoin issuers should be regulated like banks
This is according to the American Bankers Association (ABA) which issued a statement to the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion.
The subcommittee met to debate two bills on stablecoin regulation, one brought by committee Chairman Patrick McHenry and the other by Ranking Member Maxine Waters. The association said the bills as drafted fall short in several areas.
ABA noted there are elements in each bill that it supports, such as the fact that neither creates a category of nonbank entities eligible for Federal Reserve master accounts.
However, in the chairman’s bill, financial stability is not included as a factor that regulators must consider when evaluating payment stablecoin issuer applications, and those regulators’ roles are significantly limited.
Both bills have critical gaps in their proposed regulatory frameworks, including a lack of public disclosure for stablecoin issuers or requirements for third-party audits of payment stablecoin reserves.
“Stablecoins, which seek to maintain a 1-to-1 peg with a reference asset often by holding reserves as collateral, are unique among digital assets in that their intended stable value positions them as a functional alternative to a traditional deposit account,” reads the ABA statement.
“As such, it is critical that the stablecoin ecosystem, like the banking ecosystem, is subject to oversight that ensures financial stability and consumer protection.
Such oversight must put the “stable in stablecoin,” as the title of this hearing suggests. Unfortunately, despite agreeing with several areas of the draft, we do not believe the Chairman’s Draft accomplishes that goal.”
Stablecoin issuers behave in many instances like a bank in that they facilitate payments, connect to investment platforms, and store value.
This drives the need to supervise these entities in the same manner as highly regulated financial institutions of similar scale.
The US has existing laws and regulations that may be applicable to activities (e.g., custody, deposit-like accounts, lending, payments) taking place in the digital asset ecosystem.
Applying the principle of “same activity, same risk, same regulation” will help ensure that all customers are protected equally, regardless of where they engage with the financial marketplace and that the financial system remains strong, safe, and competitive.
Areas of concern
ABA notes serious concerns that the Chairman’s Draft does not adequately contemplate nor mitigate the potential risks to financial stability and consumers from stablecoins. Among its chief concerns with the regulatory framework contemplated are the following:
- Stablecoins’ potential to damage financial stability under the proposed structure
- Significantly limited role for a federal regulator to approve and supervise payment stablecoin issuers
- Critical gaps in the proposed regulatory framework
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