Crypto Regulation Weekly: Stablecoin Bill Stalls
Negotiations between two top congressional leaders to draft a stablecoin bill that could gain traction this year have hit another roadblock.
Although it is widely agreed that the need for stablecoin regulations is even more urgent than for crypto as a whole, the top two members of the House Financial Services Committee have been unable to agree on a bill they have been negotiating.
See also: US Stablecoin Bill hits a snag as negotiations break down
It doesn’t look like legislation will pass this year unless motion resumes in the next couple of weeks. With a particularly divisive midterm election cycle about to kick into high gear, there will be little appetite for bipartisanship or complex legislation that requires compromises from both sides. To say nothing of the fact that even if the committee and full House agree, a similar bill must be introduced and taken up by the Senate.
Read more: A Primer on US Stablecoin Regulations
It has stalled on a number of points, particularly the ability of state-chartered banks and other institutions to issue and monitor stablecoins, CoinDesk reported. While there is widespread agreement that stablecoins must be 100% backed by dollars and highly liquid investments like short-term government bonds, the administration’s position that only federally regulated and FDIC-covered banks be allowed to do so has drawn backlash on both sides of the aisle.
How these security reserves are treated – for example, banks can use them to make loans like other deposits – is another area of disagreement.
Then there is the likelihood that the bill will require further study of a central bank digital currency (CBDC) – the digital dollar – has also caused problems.
Controller skepticism
Both the current and a former controller of the currency chimed in on crypto regulation this week.
The office’s current occupant, Michael Hsu, pointed to the string of bankruptcies that arose from the $48 billion collapse of the Terra/LUNA stablecoin, saying that “the consequences are still being felt today in the crypto space.”
Read more: How a $48 Billion Stablecoins Collapse Rippled Over Crypto
Speaking at The Clearing House + Bank Policy Institute’s annual conference on Wednesday (September 7), Hsu said that “the federally regulated banking system, by contrast, has been largely unaffected. I believe this is due, at least in part, to the cautious and cautious approach that we adopted and intend to maintain for the foreseeable future.”
Look here: The OCC’s Hsu says banks need caution with crypto because the economy increases risk
Speaking more broadly about the digitization of banking services, Hsu said the crypto effect is overrated.
The changes “arise through the expansion of technology firms into financial services and to a lesser extent the hype and growth of the crypto industry,” he said. “While crypto has grabbed the headlines for most of the past year, I believe FinTechs and big technologies are having a big impact and warrant a lot more of our attention.”
Speaking on a panel at the same event on Tuesday (September 6), Clinton-era Comptroller of the Currency Eugene Ludwig said crypto and FinTech companies competing with banks are “getting away with murder,” Bloomberg reported. These companies that take deposits and make loans do not have adequate supervision, Ludwig said, adding that they could cause the next recession.
Banks, he added, should be allowed to “play more aggressively in the crypto markets,” to catch up, said Ludwig, who is currently managing partner at Canapi Ventures.
California looks to New York
California is on the verge of taking a page out of New York’s playbook with a bill that would “install the same kind of burdensome licensing and reporting regime that has stunted the growth of the crypto industry and limited access to safe and reliable crypto products and services in New York, ” said the Blockchain Association, referring to the New York Department of Financial Services’ BitLicense.
See more: California Crypto Bill would be as tough as New York’s BitLicense, say critics
The bill’s author, Democrat Timothy Grayson, called it “a smart, balanced policy,” adding that “a healthy cryptocurrency market can only exist if simple safeguards are established.”
The bill, which is awaiting the governor’s signature, would allow stablecoins issued by both federally or state-chartered banks and other trust companies, among others.
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