This week, a U.S. House of Representatives Committee is meeting to deliberate on the part of the stablecoin legislation, a situation that has raised concerns among banks and credit unions.
Part of the stablecoin bill is pending consideration in the United States House of Representatives later this week. The situation has evoked concerns among the prominent trade associations representing the majority of the nation’s financial institutions.
Two letters by industry associations acting on behalf of banks and credit unions and cosigned by the American Bankers Association were sent last week. They protested against a section of the comprehensive regulatory framework concerning stablecoins that the House Financial Services Committee will debate and vote on Thursday.
Banks and Credit Unions Oppose the Inclusion of Charter Option
As currently written, a section of this bill would permit the approval of stablecoin issuance by state financial regulators. This outcome has evoked concern from different entities, including the Consumer Bankers Association, Credit Union National Association, and the ABA. The ABA organized a separate letter indicating that bankers from the United States territory of Puerto Rico and 49 state banking associations raised the same concerns.
The ABA and state bankers association claimed that, like the banking system, the stablecoin ecosystem is subject to robust regulatory oversight, which would translate to adequate client protection and financial stability. Further, the associations claimed that similar to state-chartered banks, stable-licensed stablecoin issuers should have an equivalent level of federal oversight.
State-Based Regulatory Approval Method Face Opposition
Similarly, the CBA, ABA, and CUNA criticized the high’ systemic risk’ and ‘arbitrage’ concerning the state regulatory approval method in the bill. They suggested the need to subject stablecoin issuers to similar federal oversight received by credit unions and banks.
The trio of national associations declared that since the entities want to make new money, they need similar supervision from a national regulator as credit unions and standard chartered banks. Nevertheless, the draft law enforces critical restrictions on a federal regulator’s role in approving and supervising issuers of state-approved payment stablecoins.
Low State Readiness to Regulate Cryptocurrencies
Additionally, the legislation establishes a regulatory arbitrage for all nonbank entities to find the state’s ‘most suitable’ regulatory regime. The state’s readiness to regulate bitcoins is low, mainly because of the issuer’s ability to rapidly shift to international stablecoins that enhance global payments.
The groups also suggested the need for the bill to integrate language mandating examinations by regulators as well as third-party audits of reserves going past present asset reporting requirements contained in the bill. This will ensure that stablecoin issuers possess the assets they claim to have to support the issued flat-dominated tokens completely.
The letter also suggested an explicit ban or restrictions on a commercial firm’s capability to possess or control an issuer of payment stablecoin. This resembles the gaps between the United State’s commercial and banking firms. The group wrote that the limitations are vital to safeguard clients from possible conflicts of interest or self-dealing.
Perspective from the White House Likely to Influence Democrats
Opposers in the industry have the power to influence Democrats, and probably Republicans, from backing the bill drafted by House Republicans. The bill originates from bilateral talks that stretch back to last summer.
Several Democrats in the committee, which includes Rep. Maxine Waters, D-Calif., the most senior Democrat in the panel, have complained about permitting a lot of freedom around stablecoin’s state approval.
However, the bill is presently considered to have a higher chance of bilateral support and, as a result, passage into law compared to another bill that the Financial Services and Agriculture Committees co-drafted to establish new and crypto-explicit market regulation.
Early Tuesday morning, Patrick McHenry, R-N.C, the House Financial Services Committee Chair, postponed planned meetings concerning the stablecoin bill to Thursday. On Wednesday, the team will take into account the market structure law.