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OCC Acting Comptroller Michael J. Hsu addressed the future of crypto-assets and potential benefits of banking regulation.
In remarks before the British-American Business Transatlantic Finance Forum, Mr. Hsu identified some of the risks associated with stablecoins and suggested that the regulation of issuers as banks could actually enable more durable innovation. He acknowledged the importance of stablecoins as a bridge between the fiat and crypto worlds, including stablecoins' pivotal role in decentralized finance. He also noted, however, that stablecoins may be susceptible to potential runs by investors if trust in these assets fades, especially those with "questionable and opaque reserve management procedures." He compared such a potential run on stablecoins to the 2008 financial crisis, where runs affected banks, securities firms, structured finance vehicles and money market funds.
Mr. Hsu proposed that banking regulations could mitigate the risks of potential investor runs by giving these assets the appearance of being as safe as ordinary bank deposits. He suggested that the presence of (i) reserve funds, (ii) oversight by bank supervisors and (iii) access to a central bank's discount window for liquidity could instill consumer confidence. He argued that "strong, targeted federal regulation of money and banking can help establish a solid foundation for the economy enabling healthy innovation and growth."
Mr. Hsu also described how crypto-assets are becoming increasingly intertwined with the rest of the economy, requiring a coordinated regulatory response. For example, he highlighted the OCC's cooperation with the Federal Reserve and FDIC in establishing a common set of defined terms, risks and roadmaps for crypto-asset regulations (see prior coverage). He noted, however, that large crypto intermediaries do not currently face a single, comprehensive regulatory authority and, as they continue to expand, the risks associated with the lack of interagency collaboration will grow.
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