Crypto Regulation Weekly: Stablecoin Bill Stalls
CFTC Commissioner Kristin Johnson Urges Congress to Expand Agency's Authority to Review Crypto Acquisitions
Negotiations between two top congressional leaders to draft a stablecoin regulatory bill that could win passage this year have hit another roadblock.
While there is widespread agreement that the need for stablecoin regulations is even more pressing than for crypto as a whole, the top two members of the House Financial Services Committee have not been able to come to terms on a bill they have been negotiating.
See also: US Stablecoin Bill Hits a Snag as Negotiations Break Down
Legislation seems unlikely to pass this year unless movement 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 requiring compromise on both sides. To say nothing of the fact that even if the committee and full House come to an agreement, a similar bill must be introduced and taken up by the Senate.
Read more: A Primer on US Stablecoin Regulations
That has become bogged down on a number of points, notably the ability of state-chartered banks and other institutions to issue and oversee stablecoins, CoinDesk reported. While there is widespread agreement that stablecoins must be 100% backed by dollars and high-liquidity investments like short-term Treasurys, the administration's position that only federally regulated and FDIC-covered banks be allowed to do so has gotten pushback on both sides of the aisle.
How those backing reserves are treated — for example, can banks use them to make loans like other deposits — is another area of disagreement.
Then there's the likelihood that the bill will call for further study of a central bank digital currency (CBDC) — the digital dollar — also has raised problems.
Comptroller Skepticism
Both the current and a former comptroller of the currency have chimed in on crypto regulation this week.
The office's current resident, Michael Hsu, pointed to the string of bankruptcies arising from the $48 billion collapse of the Terra/LUNA stablecoin, saying the "repercussions are still being felt today in the crypto space."
Read more: How a Stablecoin's $48B Collapse Rippled Across Crypto
Speaking at The Clearing House + Bank Policy Institute Annual Conference on Wednesday (Sept. 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 careful and cautious approach that we adopted and intend to maintain for the foreseeable future."
See here: OCC's Hsu Says Banks Need Caution With Crypto as Economy Ups Risks
Speaking more broadly about digitalizing banking, Hsu said crypto's impact has been overstated.
The changes are "occurring through the expansion of technology firms into financial services and to a lesser degree 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 techs are having a large impact and warrant much more of our attention."
Speaking on panel at the same event Tuesday (Sept. 6), Clinton-era Comptroller of the Currency Eugene Ludwig said that the crypto and FinTech companies that compete with banks are "getting away with murder," Bloomberg reported. These companies taking deposits and making loans don't have sufficient oversight, Ludwig said, adding that they could cause the next recession.
Banks, he added, should be allowed to "play more aggressively in the crypto markets," in order to retake their turf, said Ludwig, who is currently managing partner of Canapi Ventures.
California Looks to New York
California is on the verge of taking a page out on New York's playbook with a bill that would "install the same type of onerous 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," the Blockchain Association said, referring to the New York Department of Financial Services' BitLicense.
See more: California Crypto Bill Would Be as Tough as New York's BitLicense, Critics Say
The bill's author, Democrat Timothy Grayson, called it a "a smart, balanced policy," adding that "a healthy cryptocurrency market can only exist if simple guardrails are established."
The bill, which is awaiting the governor's signature, would allow stablecoins issued by both federal- or state-chartered banks and other trust companies, among other things.
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