Yesterday, three Republican members of the House Committee on Financial Services sent a letter to the Chair of the U.S. Federal Reserve (Fed), complaining about two regulatory letters issued earlier this month. These Fed letters include requiring State banks to get a no action letter before proceeding to get involved in stablecoins, and the Novel Activities Supervision Program which involves heightened Fed engagement with banks for DLT, tokenization of securities and crypto.
“We are concerned that these actions are being taken to subvert progress made by Congress to establish a payment stablecoin regulatory regime,” said the letter signed by Committee Chair Patrick McHenry and the Chairs of two subcommittees. “Moreover, if these letters are left in place, they will undoubtedly deter financial institutions from participating in the digital asset ecosystem.”
Additionally, the Representatives assert that the Fed has no intention of authorizing any activities related to public permissionless blockchains based on a footnote in one of the Fed letters.
The Stablecoin Bill
In July the Stablecoin Bill was approved by the Committee but lacked bipartisan support. There were disagreements over several issues, but Democrats were particularly unhappy about powers handed to States for stablecoin issuance and limitations on the Federal Reserve’s role.
The Bill still has to pass the full House, the Democrat-controlled Senate and the President.
It appears to be the timing of the Fed letters that is upsetting the Congressmen, coming two weeks after the passage of the Bill from the Committee. In part, they perceive the letters as contradicting the Bill.
The draft legislation allows subsidiaries of federal and state chartered banks to issue stablecoins and also includes the following paragraph that covers novel activities, explicitly preventing the imposition of limitations on bank participation. Activities outlined in the draft Bill include:
- accepting or receiving deposits and issuing digital assets that represent deposits;
- utilizing a distributed ledger for the books and records of the entity and to affect intrabank transfers; and
- providing custodial services for payment stablecoins, private keys of payment stablecoins, or reserves backing payment stablecoins.
The Congressmen requested a long list of information including all internal communications about the Fed’s two letters, whether previously rejected banking activities can be reconsidered, and the criteria that the Fed uses to arrive at its decisions.
Meanwhile, earlier this month, 23 Republicans on the Committee wrote a letter to the SEC querying the grant of the first and only special purpose broker dealer license to Prometheum Ember Capital.