On February 8, 2022, U.S. Treasury Under Secretary for Domestic Finance Nellie Liang testified before the House Financial Services Committee and stressed the need for clear and consistent stablecoin regulation. During the hearing, Liang answered questions about the recommendations outlined in a November report from the President's Working Group on Financial Markets, which recommended limiting issuance of stablecoins to insured depository institutions (i.e., banks), among other proposals. Liang argued that treating stablecoin issuers like banks would help submit them to proper reserve requirements and stated, "If stablecoins are backed by high-quality assets, their risk is quite low. But if they're not supported and there's questions about the quality of the reserve assets in the reserve pool backing them, then they create risk."
However, some lawmakers pushed back on the idea that all stablecoin issuers should be treated like banks. Rep. Patrick McHenry (R-N.C. 10th District) countered, "We cannot regulate out of fear of the future. Requiring stablecoins to only be issued by banks would be a major obstacle for us to continue fostering innovation in this nascent industry." Likewise, Rep. Tom Emmer (R-Minn. 6th District), Chair of the Congressional Blockchain Caucus, commented, "Here's the bottom line, banks should not be the only institutions in the ecosystem with dibs to issue the potential array of financial products that the President's Working Group report simply lumps together and ties as a stablecoin." Liang then pointed out that some major stablecoin issuers are already seeking a banking charter and suggested that the Biden Administration was potentially open to other types of regulations.
It remains to be seen how this tension over stablecoin regulation will ultimately be resolved.
DISCLAIMER: This article was originally published by McGonigle PC prior to their combination with Davis Wright Tremaine LLP. The article is published here with permission.