Treasury official touts the ‘flexibility’ of bank charters for stablecoin issuers during Senate hearing

In its push for greater stablecoin oversight, the US Treasury Department is trying to soften its central proposed regime. This was particularly apparent in a hearing before the Senate Banking Committee today. 

In the second of two hearings on a report on stablecoins from the President’s Working Group on Financial Markets, a senior Treasury official was determined to soften the blow of the PWG’s most controversial proposal: restricting stablecoin issuance to insured depository institutions, or IDIs.

The report urged Congress to pass such a restriction into law, but that push has drawn criticism from both sides of the aisle, especially at last week’s hearing before the House Financial Services Committee. Nellie Liang, the Treasury undersecretary who spearheaded the PWG report, was the sole witness in both hearings. In that capacity, her main task has been to sell Congress on the IDI rule. 

Democrats on the Banking Committee generally highlighted regulatory gaps and the absence of reporting oversight for stablecoin issuers, as well as overall risk in the cryptocurrency market. “I’ve not been satisfied much with what they’ve said or done in terms of disclosing to the public the risks of stablecoin or the risks of other investments in cryptocurrency,” Chairman Sherrod Brown told The Block.

Committee Democrats were, however, less inclined to get into the specifics of the IDI rule than their colleagues in the House Financial Services Committee. They certainly mentioned the rule less than Banking Committee Republicans. 

Pat Toomey (R-PN), the leading Republican on the Banking Committee, has opposed the IDI restriction publicly since the PWG released its report in December. He presented an alternative framework at a separate hearing on stablecoins at the time. Toomey’s looser framework would provide more flexibility for businesses and less oversight for a single federal regulator. 

In response to questioning from Toomey, Liang argued that the IDI requirement was not a one-size-fits-all approach, saying: “Stablecoin issuers that issue only stablecoins, do not extend credit, should not need to be subject to the full set of banking regulations that relate to credit provision. So flexibility I agree is very important. 

Liang continued: 

“Staying flexible within an IDI charter — which I believe is flexible — to better match the activities and risks with the regulation. The PWG report did not necessarily recommend deposit insurance, for example, so that would be consistent with a narrow bank.” 

It is not clear what Liang and the Treasury are considering as an “insured depository institution” in the absence of FDIC insurance. Indeed, the term is defined in the Federal Deposit Insurance Act as “any bank or savings association the deposits of which are insured by the Corporation pursuant to this Act.” Liang was unavailable for comment. 

Toomey noted that the framework in question opened itself up to “a lot of regulatory discretion,” saying that “I don’t think that’s the optimal way to proceed. I think it’s better for Congress to provide some guidepoints.”

While pushing for such broad regulatory authority, Liang appeared keen to indicate support for what she at several points called “a stable stablecoin” or “a truly stable stablecoin,” saying that the technology “would go far in preserving the dollar as the global currency.”

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