As the stablecoin regulation progresses in the chambers of the United States lawmakers, a recent draft bill has gained significant attention. Notably, the banking groups and trade associations have raised objections to a bill lined up for discussion.
Sources reveal that a specific portion of the bill which is due consideration in the U.S. House of Representatives later this week has drawn concern from major trade associations representing the vast majority of U.S. financial institutions.
In two recent letters, both co-signed by the American Bankers Association highlighted issued with a portion of the comprehensive regulatory framework for stablecoins that the House Financial Services Committee is scheduled to debate and vote on Thursday. The ABA is the industry associations representing banks and credit unions.
The group lobby for banks of all sizes and charters, including community banks, regional and money center banks, savings associations, mutual savings banks, and trust companies. Reportedly, the part in question would allow for state financial regulators to approve stablecoin issuance, an outcome that’s sparked concern from the ABA, the Consumer Bankers Association and Credit Union National Association.
To this, in a separate letter organized by the association, 49 state banking associations, as well as bankers from the U.S. territory of Puerto Rico, also raised similar concerns. The ABA and state bankers’ association wrote:
To ensure effective consumer protection and financial stability, it is critical that the stablecoin ecosystem, like the banking ecosystem, is subject to strong regulatory oversight.
Additionally, the associations stated they want “the same level of federal oversight to state-licensed stablecoin issuers as is currently applied to state-chartered banks.” Simultaneously, the ABA, CBA, and CUNA raised concerns over increased “arbitrage” and “systemic risk” about the state regulatory approval approach within the bill.
The agencies also called for stablecoin issuers to be subject to the same federal oversight that banks and credit unions receive. The national association trio wrote in their letter:
Given these entities’ intent to create new money, we believe they should be subject to at least the same form of supervision from a federbal regulator as are state-chartered banks and credit unions.
Now, reviewing the draft stablecoin legislation, the associations stated it imposes critical limits on the role of a federal regulator to approve and supervise state-licensed payment stablecoin issuers and creates a regulatory arbitrage opportunity for nonbank entities to shop for the ‘best’ regulatory regime by state. Furthermore, it is unlikely that states are prepared to regulate stablecoins individually, especially given stablecoin issuers’ capacity to “quickly scale into global stablecoins that facilitate international payments.”
The national trade associations claimed that stablecoins have “clear monetary policy implications” while calling for “federal oversight that ensures financial stability and consumer protection.” The groups also suggested the stablecoin bill to include language mandating examinations by regulators and third-party audits of reserves that go beyond current asset reporting requirements within the bill.
Notably, the agencies have suggested the measures to ensure that stablecoin issuers have the assets they claim they do to fully back the fiat-denominated tokens they issue. The letters also called for an explicit ban, or at least limitations, on the ability of a commercial company to own or control a payment stablecoin issuer, similar to existing separations between commercial and banking companies in the U.S. As stated in the letter:
These restrictions are critical to protect consumers from potential self-dealing or conflicts of interest.
While the regulator is tabled for discussion this week, industry opposition could push Democrats, and possibly Republicans, from supporting the House Republican-drafted bill, which is the product of bipartisan negotiations stretching back to last summer. Notably, despite the differences in ideologies, the draft bill saw members mutually negotiating.
Several Democrats on the Financial Services Committee, including the panel’s most senior Democrat, Rep. Maxine Waters, Democrat-California, have raised concerns over allowing too much leeway around the state approval of stablecoins. But the stablecoins bill is currently seen as having a greater chance of bipartisan support, and as a result passage into law, than a separate bill co-drafted by the Financial Services and Agriculture Committees that would create new, crypto-specific market regulation.
Regulating stablecoins has been a priority of US financial agencies, which see them as potential threats to future financial stability. Early Tuesday morning, House Financial Services Committee Chair Patrick McHenry, Republican-North Carolina, pushed back scheduled committee debate over the stablecoins bill to Thursday, while the committee will still consider the market structure legislation on Wednesday.
However, with all the opposition from banking associations, it seems that there is still much work to be done before stablecoin legislation can become a reality in the USA. Nonetheless, with the draft bills and scheduled discussions the promise of lawmakers to regulate the sector can be seen putting examples for rest of the countries to follow.