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 pressured to have their reserves backed in conservative property like money and US Treasury bonds that might not be weak to market panics beneath the proposed regulation.
Lawmakers fear about stablecoin vulnerability
The US lawmakers are anxious that stablecoins are weak 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 state of affairs the place a stablecoin issuer is pressured 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 towards 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 harder regulatory oversight and are mandated to adjust to federal companies to guard their clients’ funds.
In line with the report, stablecoin issuers must 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 corporations and business companies or technological corporations.
Federal Reserves to function regulator
The report stated the invoice positions the Federal Reserve because the regulator of “cost stablecoins issuers.”
The Fed was favored over the Securities and Change Fee (SEC) as a result of it has a greater report 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 may not handle stablecoin buying and selling and may not give sufficient regulatory oversight to watch 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.