At a hearing before the House Committee on Financial Services, representatives considered legislative recommendations from the November 2021 President's Working Group ("PWG") Report on stablecoins. (See also Majority Staff Memorandum.) As previously covered, SEC Chair Gary Gensler and CFPB Director Rohit Chopra supported the recommendations and pledged that their agencies will take action to address the risks identified in the report.
Under Secretary for Domestic Finance Nellie Liang testified on those risks which include: (i) the risk of stablecoin runs; (ii) payment system risks; and (iii) the risks due to concentration of economic power. Ms. Liang reiterated the PWG Report recommendations including: (i) limiting issuance of stablecoins to insured depository institutions; (ii) giving supervisors of stablecoin issuers the authority to set risk management standards; and (iii) establishing measures to reduce concerns regarding concentration of economic power. She emphasized that "[bank] regulation provides a tested regulatory model that would protect against the prudential risks of stablecoins."
Ms. Liang also reported that Financial Stability Oversight Council was evaluating stablecoins for potential systemic risks, which may lead to the designation of certain stablecoin arrangements as "systemically important payment activities." She concluded that policy should not only focus on digital assets themselves but also on the regulation of intermediates like custodial wallet providers, and the systemic risks stemming from investors leveraging against digital assets.
Primary Sources
- Virtual Hearing - Digital Assets and the Future of Finance: The President's Working Group on Financial Markets' Report on Stablecoins
- U.S. House Financial Services Committee Memorandum: "Digital Assets and the Future of Finance: The President's Working Group on Financial Markets' Report on Stablecoins"
- S. Department of Treasury: Testimony of Under Secretary for Domestic Finance Nellie Liang before the Committee on Financial Services, U.S. House
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