WASHINGTON — Congressional Democrats are crafting legislation that would establish the first federal rules and prudential backstops for stablecoins, according to draft legislation obtained by American Banker.
The draft legislation — spearheaded by House Financial Services Committee member Rep. Josh Gottheimer, D-N.J. — would limit what institutions may issue stablecoins and would create a separate insurance fund supervised by the Federal Deposit Insurance Corp. to cover losses by nonbank stablecoin issuers. The draft legislation has been circulating on Capitol Hill for the last several weeks but has not been officially released.
While expectations are low for Congress passing significant legislation on cryptocurrencies in the near term, Gottheimer’s bill could emerge as a starting point for lawmakers’ deliberations in the coming months.
The draft bill would limit stablecoin issuance to depository institutions but also leave room for “qualified” nonbanks that meet certain requirements; namely, nonbanks would need to hold “collateral in an amount equal to 100% of the value of outstanding stablecoins issued by the nonbank,” and that the collateral must either be maintained in the form of U.S. dollars or government securities.
Gottheimer’s draft legislation would also make significant changes to the Federal Deposit Insurance Act by directing the FDIC to “establish a Stablecoin Insurance Fund,” which would cover qualified nonbank stablecoin issuers. Insurance limits would match the standard offered to federally regulated banks, currently set at $250,000 per depositor.
The draft defines stablecoins as “any cryptocurrency or other privately issued digital financial instrument that is collateralized on a one-to-one basis by United States dollars.” The legislation also specifies that, if passed, stablecoins would not be considered a type of security or commodity.
Gottheimer’s bill largely tracks with the recommendations made by the President’s Working Group on Financial Markets in November, drafted by regulators at the Treasury Department, Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, Office of the Comptroller of the Currency and the FDIC. One particular divergence between the working group's recommendations and Gottheimer's bill is the inclusion of nonbanks as potential issuers of stablecoins, while the working group recommended limiting issuance to depository institutions.
The bill is the most significant legislative initiative to address stablecoins since 2020, when Reps. Rashida Tlaib, D-Mich., Jesús “Chuy” García, D-Ill., and Stephen Lynch, D-Mass., introduced the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act. That bill was drafted in response to Facebook’s now-defunct stablecoin project and would have limited stablecoin issuance exclusively to banks and require them to receive regulatory approval before creating such a product.
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