Yesterday, a new U.S. bill aimed at regulating stablecoins was introduced by Congresswoman Rashida Tlaib, Congressmen Jesús “Chuy” García, and the Task Force on Financial Technology Chairman, Rep. Stephen Lynch. The Stablecoin Tethering and Bank Licensing Enforcement Act (STABLE) would amend the current Federal Deposit Insurance Act, to regulate stablecoin issuance and other commercial activities.
Congresswoman Tlaib is particularly concerned that during COVID-19, the underbanked could turn to alternative financing routes out of desperation and wants to prevent their exploitation. She specifically mentioned Facebook’s Diem (formerly Libra) and said that JP Morgan, Apple, and Paypal have considered issuing stablecoins. Diem insiders are hopeful of a January launch, but the Apple and Paypal comments are news.
“Getting ahead of the curve on preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of color that traditional big banks have is- and has been- critically important,” said Congresswoman Tlaib. “From the OCC to the Federal Reserve to those peddling stablecoins the protections the STABLE Act would make possible are more needed than ever amid a pandemic that will breed riskier financial decisions out of necessity because our federal government continues to fail us all by not providing adequate relief legislation.”
Congressman Garcia echoed similar sentiments, but Rep. Lynch took a middle ground. “Stablecoins present a new and innovative way for consumers to use their money and I believe this technology can be used to make financial transactions more efficient while potentially increasing financial inclusion. However, adopting new technology has its risks,” said Rep. Lynch. Those credit, liquidity and market risks have been outlined in numerous papers, most recently by the European Central Bank.
The STABLE Act’s specific requirements include:
1) any prospective stablecoin issuer must have a banking charter. The appropriate Federal banking agency can revoke this if the issuer fails to immediately redeem an outstanding stablecoin in U.S. dollars, upon demand.
2) Banks issuing stablecoins must notify and obtain the written approval of the appropriate Federal banking agency, the FDIC, and the Board of Governors of the Federal Reserve System, six months before issuance. They must also conduct ongoing analysis of any probable systemic risks and repercussions.
In late September, the U.S. Office of the Comptroller of the Currency (OCC) gave its approval for national banks and federal saving associations to hold stablecoin reserves. Additionally, Comptroller Brian Brooks wrote an interpretive letter effectively giving the green light for banks to provide cryptocurrency custody and he also plans a special purpose payments charter. Talib, Lynch and Garcia believe the OCC is overstepping its statutory authority and penned a forceful letter to that effect last month.