Treasury Secretary Janet Yellen will convene top U.S. financial-market and bank regulators on Monday to discuss rules for so-called stablecoins, a key part of the cryptocurrency market where government officials are increasingly fretting about a lack of oversight.
The meeting of the President’s Working Group on Financial Markets will “discuss interagency work on stablecoins,” the Treasury Department said in a statement Friday. In addition to the Treasury secretary, the working group is comprised of the heads of the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission, and this session will also include two bank regulators: the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Yellen said in the statement. “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”
The working group “will examine the current regulation of stablecoins, identify risks, and develop recommendations for addressing those risks,” and expects to “issue written recommendations in the coming months,” the Treasury said.
Regulators are increasingly worried about this new kind of cryptocurrency, which has a fixed price and is backed by real-money reserves, because of risks it poses to investors and the financial system broadly. Lawmakers and officials from the Fed and the administration have expressed alarm both in public and private that some consumers won’t actually be protected should one of the firms not have the backing they purport to have.
They also say the growing size of stablecoins has created a situation where huge amounts of U.S. dollar-equivalent coins are being exchanged without touching the U.S. banking system, potentially blinding regulators to illicit finance.
The market value of U.S.-dollar-backed stablecoins has grown rapidly in the past year and surpassed $100 billion in May. The largest, called Tether, has faced scrutiny from regulators for not always having the backing that it has claimed to have.
The planned meeting follows comments by Fed Chair Jerome Powell this week warning that stablecoins lack needed regulatory oversight.
“They are like money funds, they’re like bank deposits and they’re growing incredibly fast but without appropriate regulation,” Powell said in answering questions before the Senate Banking Committee on Thursday. “And if we’re going to have something that looks just like a money market fund or a bank deposit or a narrow bank and it’s growing really fast, we really ought to have appropriate regulation. And today, we don’t.”
Fed officials including Boston Fed President Eric Rosengren have highlighted potential growing risks from stablecoins including Tether.
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There’s also the question of whether Congress should step in and write new laws that would give regulators more authority to regulate cryptocurrencies. One bill introduced in Congress last year would require stablecoin issuers to have a banking charter and get approval from the Fed, among other agencies.
The concept of a stablecoin is closely linked to the difficult decision the Fed faces on whether to someday launch a digital currency. Powell suggested this week that the best-case scenario for a Fed-run digital dollar would involve Congress issuing a legislative directive rather than letting the regulators pick through existing “ambiguous law” to back up any future moves.
The Fed has already been working on a digital-currencies report that Powell said could be released as soon as September. Among other things, that document will include a discussion on the risks and benefits of stablecoins, he said.
In recent years, the OCC has set itself up as the most aggressive banking agency when it comes to prepping the financial system for the influx of cryptocurrencies. The agency’s former acting head Brian Brooks, a Trump administration pick, made a series of rapid moves to accelerate digital currencies in U.S. banking. But Brooks left and took a job running the cryptocurrency exchange Binance.US, and the OCC’s work is expected to slow under Michael Hsu, the agency’s current temporary chief.
