The atmosphere is changing rapidly in the crypto world, and a second major crash around the Celsius network has calmed some of the most vocal cryptocurrency proponents in Washington and reinforced banking regulators’ cautious approach to cryptocurrency. digital assets.
The crashes “confirm some of our earlier thinking that there are vulnerabilities and risks in this space that warrant a careful and cautious approach,” Hsu, the currency’s acting comptroller, told reporters after the Celsius market turmoil. .
With cryptocurrency volatility increasingly in the spotlight, more and more eyes are turning to stablecoin regulation. Stablecoins, which are supposed to be backed by real assets such as treasury bills and bonds, underpin the crypto markets. The hope is that, if stablecoins are backed by relatively liquid assets and regulated similarly to banks, they will reduce the frequency and severity of runs on other digital assets.
A bipartisan bill emerged in early June from Sens. Kirsten Gillibrand, DN.Y., and Cynthia Lummis, R-Wyo.
The crypto industry generally applauded the proposal, which took a comprehensive approach to defining digital assets and establishing regulatory jurisdiction over them.
The bill offers a few options for stablecoins. One echoes the Biden administration’s suggestion: place stablecoin issuers under the FDIC and impose bank-like regulation on them.
The other would require issuers to fully back their coins with durable assets, a mandate that would subject them to scrutiny similar to that of exchange-traded funds, which are required to have their underlying assets verified by third-party groups.
Banks had a more lukewarm response to the bill than the crypto industry. A provision in the bill would mean that any deposit-taking institution with a state charter is entitled to an account at a Federal Reserve bank, whether federally insured or supervised. Banking groups say it gives fintechs an unfair advantage.
The move on stablecoin regulation could come as fast like before the end of the year, said Toomey, the GOP ranked member of the Senate Banking Committee. Toomey has put forward its own bill on the matter that would create a new federal license for stablecoin issuers and authorize the OCC to issue it.
How to regulate the stablecoin is a tricky issue that banks need to take a stance on. On the one hand, requiring stablecoin issuers to adopt bank-like regulations would help level the playing field, giving issuers similar oversight, giving them deposit insurance, and requiring them to be backed by relatively liquid assets.
But it could also reintroduce risk into the banking system, some industry watchers have warned. While banks have seen little impact from recent market volatility, that could change if crypto risk is put back on the balance sheets of highly regulated financial institutions.
“Dodd-Frank was aimed at reducing the risk of big banks, and now the president’s task force is considering that we’re going to add more risk to these institutions,” Rep. Pat McHenry, RN.C., said in May during a a meeting in the House. Financial Services Committee hearing with Yellen.
Yellen and other key Treasury Department officials, including Nellie Liang, the undersecretary for internal finance, have called for such banking regulation, though some lawmakers on both sides of the aisle have backed off.
“It seems to me that limiting the issuance of stablecoins to insured depository institutions, which have a high barrier to entry, might limit competition,” said Rep. Gregory Meeks, DN.Y., told a House Financial Services Committee hearing in February.
The movement to regulate stablecoins goes beyond Washington. The New York State Department of Financial Services released new guidelines for stablecoin issuers in early June, calling for reserve requirements and independent monthly audits.