Congress works to finalize stablecoin bill as regulators plea for urgent action
Just a week after senior officials from the Federal Reserve and the U.S. Department of Treasury renewed calls for lawmakers to set up a legal framework to regulate stablecoins, one legislator said such a measure could reach the finish line by year-end.
"I think we can get stablecoin legislation done before the end of the year," Ranking Member on the U.S. House Financial Services Committee Patrick McHenry, R-N.C., said at a congressional caucus
Such a measure would provide relief to regulators, who just renewed calls for Congress to set up a legal framework for stablecoins at a conference hosted by The Clearing House and the Bank Policy Institute last week.
"We have seen that the crypto financial system has all the same risks that we're very familiar [with] from traditional finance: run risk, liquidity risk, maturity transformation risk and lots of risk to investors, particularly retail investors," Lael Brainard, vice chair of the Federal Reserve, said.
The collapse of the algorithmic stablecoin pair TerraUSD and Luna in May caused a broad crash in cryptocurrency prices and a liquidity crisis across industry players that included the bankruptcy of cryptocurrency lenders Voyager Digital Ltd. and Celsius Network Ltd.
Late last year, the government issued a report recommending legislation that would limit stablecoin issuers to insured depository institutions and restrict affiliation with commercial entities.
Stablecoin risks can easily spill into the main, core financial system, Brainard said. Concerns include the possibility of fire sales of reserve assets used to back stablecoins that could disrupt critical funding markets.
The Department of Treasury, which helped produce the report last year, views stablecoins as a rapidly emerging risk to financial stability that demands legislation as soon as possible, said Jordan Bleicher, senior adviser to the undersecretary for domestic finance at the Treasury Department.
"The Treasury's goal is not necessarily to drive out stablecoins," Bleicher said on a panel at the BPI conference. "It is to ensure that stablecoins are appropriately regulated."
Brainard said she expects there to be a number of stablecoins in operation in the future. She added that a potential central bank digital currency could serve as "a neutral settlement layer that would enable commercial bank money, stablecoins to interoperate and coexist and provide some resilience to that system."
In July, The Wall Street Journal reported movement on a bipartisan agreement for legislation that would impose stringent rules on the stablecoin industry. The action came amid concerns that current laws do not provide comprehensive standards for the assets, viewed by some as a potential risk to financial stability. However, the measure failed to make progress.
Asked why there has not been more progress on legislation yet, Brainard said, "I think it's genuinely difficult to legislate for highly dynamic emerging financial areas. But boy, it does seem like a really important area to put some clear rules in place."
Michael Barr, the Fed's new vice chair for supervision, also said stablecoin regulation is one of his priorities.
"I believe Congress should work expeditiously to pass much-needed legislation to bring stablecoins, particularly those designed to serve as a means of payment, inside the prudential regulatory perimeter," he said.
Source: S&P Global Market Intelligence
