US Lawmakers Introduce Bill That Would Require Stablecoin Issuers to Obtain Bank Charters

Rep. Rashida Tlaib, Rep. Stephen Lynch and Rep. Jesus Chuy Garcia have introduced a bill that would require stablecoin issuers to secure bank charters and either obtain FDIC insurance or maintain full reserves to operate in the U.S.

Dec 2, 2020 at 10:37 p.m. UTC
Updated Sep 14, 2021 at 10:37 a.m. UTC

A new U.S. congressional bill would require stablecoin issuers to secure bank charters and secure regulatory approval prior to circulating any stablecoins.

U.S. Representatives Rashida Tlaib (D-Mich.), Jesús “Chuy” García (D-Ill.) and Stephen Lynch (D-Mass.) introduced the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act on Wednesday, writing in a press release that it would focus on regulating stablecoins, naming the stablecoin of the Facebook-led Libra project (since renamed Diem) as one example.

“Digital currencies, whose value is permanently pegged to or stabilized against a conventional currency like the dollar, pose new regulatory challenges while also represent a growing source of the market, liquidity, and credit risk,” the press release said.

The 18-page bill would specifically require stablecoin issuers to obtain a banking charter; require approval from the Federal Reserve, Federal Deposit Insurance Corporation and the issuer’s specific state or federal bank regulator; require those same entities to conduct an ongoing analysis of any systemic risk; and require issuers to have FDIC insurance or maintain reserves for easy conversion back into U.S. dollars.

This would apply to stablecoins pegged to other national or state currencies, the bill said.

Chastity Murphy, an economic adviser to Rep. Tlaib, told CoinDesk that both state and federal bank charters would satisfy the bill's requirements.

Rohan Grey, an assistant professor at the Willamette University College of Law in Oregon, told CoinDesk the bill is really defining what a deposit is as far as digital assets are concerned. In his view, stablecoins are effectively an internet-native form of a deposit.

"Any entity that wants to issue something that walks and talks like money or like a deposit should be regulated like a depository institution," he said. Grey is an adviser for the bill.

The press release also mentioned a letter that the sponsors and cosponsors had previously sent to Acting Comptroller of the Currency Brian Brooks, that questioned the regulator’s focus on the digital asset space. Specifically, the lawmakers took issue with OCC interpretive letters on banks providing custody services to stablecoin issuers and other crypto platforms.

Impact

The bill is designed to protect individuals, Rep. Tlaib said on Twitter and in the press release.

In a tweet she wrote, "Preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of color traditional big banks have is critically important."

A number of stablecoin issuers currently operate in the U.S. without banking charters, including the CENTRE consortium (which is composed of Circle and Coinbase), Gemini and Paxos. Algorithmic stablecoins like basis.cash or crypto collateral tokens like DAI would also appear to fall under this bill.

"Any stablecoin that meets the statutory definition is eligible, because the focus is on what the coin promises (i.e., the obligation), not how it claims to be able to enforce the obligation (i.e., the collateral backing). Full-reserve, partial-reserve, algorithmically deteremined basket - these are all asset-side variations. The 'deposit' component focuses on the liability side promise," Murphy said.

Circle CEO Jeremy Allaire said the bill "would represent a huge step backwards" by limiting industry innovation.

"An enormous amount of the innovation brought to the underbanked and small businesses has been driven by non-bank fintech companies, and forcing crypto, fintech and blockchain companies into the enormous regulatory burdens of Federal Reserve and FDIC regulation and supervision is inconsistent with the goals of supporting innovation in the fair and inclusive delivery of payments that comes from stablecoins," he said in a statement emailed to CoinDesk.

More effective ways to regulate stablecoins could come from new charters or other types of supervision, he said.

In a statement, Blockchain Association Executive Director Kristin Smith opposed the bill, saying, "While we have had sustained and constructive discussions with Rep. Tlaib’s office on this issue, we disagree with the perspective of this legislation and oppose this bill. It would strengthen the position of the most powerful financial institutions, while overlooking two core promises of decentralized networks: the chance to put more power in the hands of individual consumers and to catalyze innovation across payments and other financial services."

Smith said the OCC's guidance around stablecoins was a "progressive example" of how these tokens could be regulated in the U.S.

The current congressional session will end in just a few weeks but Murphy said the bill will be introduced again next year.

"Often there’s a tendency to react in the moment to technological changes or innovation by saying, ‘stop, don’t do that’ and what this bill is trying to do is preserve this in a forward-looking way," he said.

UPDATE (Dec. 3, 2020, 03:55 UTC): Updated with additional information and comments.

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