Two US lawmakers, Maxine Waters and Patrick McHenry are collaborating on a invoice that may impose strict bank-like laws for stablecoins, The Wall Road Journal reported July 20.
Stablecoin issuers would reportedly be pressured to have their reserves backed in conservative belongings like money and US Treasury bonds that may not be weak to market panics beneath the proposed legislation.
Lawmakers fear about stablecoin vulnerability
The US lawmakers are frightened that stablecoins are weak to financial institution runs if doubts about their issuer’s potential to redeem their tokens 1:1 for the US greenback emerge.
Tether, the USDT issuer, skilled a mini-bank run in Might when it needed to honor roughly $10 billion in withdrawals in two weeks.
In response to the WSJ, this might result in a scenario the place a stablecoin issuer is pressured to liquidate its reserves, thereby putting extra downward strain on the broader monetary trade.
Treasury Secretary Janet Yellen beforehand raised the priority that stablecoins have to be correctly regulated to mitigate in opposition to any “present and future dangers.”
Stablecoin issuers to be handled like banks
The brand new invoice desires stablecoin issuers handled extra like banks moderately than cash market funds.
Banks within the US face more durable regulatory oversight and are mandated to adjust to federal businesses to guard their prospects’ funds.
In response to the report, stablecoin issuers ought to be required to adjust to federal supervision alongside capital and liquidity guidelines.
In the meantime, the invoice additionally seeks to limit non-financial corporations from with the ability to subject stablecoins — a transfer designed to separate monetary companies and business companies or technological companies.
Federal Reserves to function regulator
The report mentioned the invoice positions the Federal Reserve because the regulator of “cost stablecoins issuers.”
The Fed was favored over the Securities and Alternate Fee (SEC) as a result of it has a greater file of dealing with monetary stability dangers.
Wall Road Journal reported that the Fed has twice intervened in cash funds crises within the final 12 years.
The report added that the SEC raised considerations that the invoice won’t tackle stablecoin buying and selling and won’t give sufficient regulatory oversight to observe platforms the place these transactions happen.
SEC chief Gary Gensler has spoken about stablecoins in a number of interviews and has in contrast them to poker chips.
