Two US lawmakers, Maxine Waters and Patrick McHenry are collaborating on a invoice that might impose strict bank-like rules for stablecoins, The Wall Road Journal reported July 20.
Stablecoin issuers would reportedly be compelled to have their reserves backed in conservative property like money and US Treasury bonds that might not be susceptible to market panics beneath the proposed legislation.
Lawmakers fear about stablecoin vulnerability
The US lawmakers are anxious that stablecoins are susceptible to financial institution runs if doubts about their issuer’s capacity to redeem their tokens 1:1 for the US greenback emerge.
Tether, the USDT issuer, skilled a mini-bank run in Could when it needed to honor roughly $10 billion in withdrawals in two weeks.
In line with the WSJ, this might result in a scenario the place a stablecoin issuer is compelled to liquidate its reserves, thereby inserting extra downward stress 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 needs stablecoin issuers handled extra like banks reasonably than cash market funds.
Banks within the US face more durable regulatory oversight and are mandated to adjust to federal companies to guard their prospects’ funds.
In line with the report, stablecoin issuers needs 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 problem stablecoins — a transfer designed to separate monetary corporations and industrial companies or technological corporations.
Federal Reserves to function regulator
The report stated the invoice positions the Federal Reserve because the regulator of “fee stablecoins issuers.”
The Fed was favored over the Securities and Trade Fee (SEC) as a result of it has a greater document 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 issues that the invoice won’t deal with 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.