WASHINGTON — Acting Comptroller Michael Hsu pressed for a banklike stablecoin regulation in a recent speech, adding another voice to the argument that some Biden administration officials have been making for months.
Hsu’s remarks, made Friday morning in a panel with Georgetown University law professor Chris Brummer, echo those of Treasury officials,
The acting comptroller pushed back against suggestions that stablecoins could be regulated as money market funds, largely via public disclosures. Hsu said that public disclosures are limited in their ability to prevent a run, which has been cited as a risk of stablecoins by Hsu, and
“A banking approach would be more effective,” he said.
Hsu also argued against claims that a banking approach would cause undue burden and inefficiency.
“If a stablecoin entity were tightly limited to just issuing stablecoins and holding reserves to meet redemptions, I would agree that the full application of all bank regulatory and supervisory requirements would be overly burdensome,” he said. “Provided that the activities and risk profile of a stablecoin-issuing bank could be narrowly prescribed, a tailored set of bank regulatory and supervisory requirements could balance stability with efficiency.”
A key part of the Biden administration’s vision for cryptocurrency reform involves legislative solutions. Several lawmakers have released their own proposals, and Liang noted that the Treasury is working with lawmakers to craft policy.
Hsu described some of the proposals currently circulating as “interesting,” and said that they are mostly focused on preserving financial stability and variability.
“I don’t agree with them all, but I think this is part of the process,” he said. “One of the next steps is just to continue that engagement.”
While Hsu didn’t name any specific legislation by name, he did address a key feature in a draft proposal by Sen. Pat Toomey, R-Pa., for stablecoin regulation — allowing multiple licensing paths for stablecoin issuers.
Hsu appeared to push back on that idea: “In my experience, the wider the variability, the more likely a risky issuer blows itself up, sparking contagion across peers.”
Hsu also sees pitfalls as banks and cryptocurrency start to merge. Most debates around stablecoins right now focus on their use as an investment, or to trade. But the next step is to think about how they function as payments, he added.
This is a particular concern with banks considering “intraday liquidity risk,” Hsu said. Blockchain-based payments may outstrip the abilities of banks’ intraday controls and risk management systems, since blockchain payments are “24/7, irreversible and settle in real time.”
“The accumulation of blockchain-based payments over, say, a weekend could outstrip a bank’s available liquidity resources,” Hsu said.
A solution to this problem may be to require that stablecoin issuance be done by a standalone bank-chartered entity, he said.
Hsu comments, along with the thoughts of other regulators, show the balance the Biden administration is trying to achieve as it approaches digital asset regulation. Both Hsu and Yellen said they don’t want to stifle innovation — and acknowledged that digital assets represent a path to wealth-building for many people who have been excluded by the traditional financial system — but need to keep in mind issues of financial stability and consumer protection.
“They say it’s the new property, people think of it as the new real estate and they don’t want to miss out,” Hsu said. “I’m trying to square that with lots and lots of innovation, where there can be winners and losers, and it’s hard.”
