- Three Republican members of the House Committee on Financial Services accuse the Federal Reserve of undermining congressional stablecoin legislation through recent regulatory letters.
- These regulatory letters from the Fed would require state banks to get a ‘no-action letter’ before engaging in stablecoin activities and demand higher engagement with banks over Distributed Ledger Technology (DLT) and crypto.
Regulatory Tug-of-War: Stablecoins in the Spotlight
In a recent and notable development, three key Republican Congressmen from the House Committee on Financial Services have publicly aired grievances against the U.S. Federal Reserve (Fed). They argue that the regulatory body is undermining a carefully crafted legislative framework designed to govern stablecoins—digital assets pegged to traditional financial assets like fiat currency.
At the core of this dispute are two regulatory letters recently issued by the Fed. The first letter mandates state banks to secure a ‘no-action letter’ prior to diving into any stablecoin-related endeavors. In layman’s terms, a ‘no-action letter’ acts as a preemptive legal safeguard, offering assurance that the Fed will not take enforcement action against the bank for its proposed activities. The second letter introduces the Novel Activities Supervision Program, which demands increased Fed scrutiny over banks dealing in DLT, tokenized securities, and cryptocurrencies.
The Political Landscape Behind the Stablecoin Bill
What intensifies this spat is the political backdrop against which these letters were issued. Just two weeks ago, the Stablecoin Bill successfully navigated through the Committee albeit without bipartisan consensus. While Republicans largely back the bill, Democrats have voiced concerns, especially regarding the devolution of stablecoin issuance powers to individual states and the diminution of the Federal Reserve’s role in stablecoin regulation. The legislation, which still awaits approval from both houses and the President, broadly allows:
- Subsidiaries of federal and state chartered banks to issue stablecoins.
- Utilization of distributed ledger technology for internal bank transfers and record-keeping.
- Provision of custodial services for stablecoins, their private keys, and backing reserves.
The timing of the Fed’s regulatory letters, coming on the heels of the Committee’s approval of the Stablecoin Bill, is perceived by the Congressmen as an affront to legislative due process. The letters are seen as in direct contradiction to the Bill, particularly its clauses that would allow for greater freedom for financial institutions in the burgeoning field of digital assets.
The legislators have demanded a comprehensive list of internal communications regarding the Fed’s actions, clarification on reconsideration for previously rejected banking activities, and the rationale behind these abrupt regulatory measures. Meanwhile, a separate cohort of 23 Republicans had earlier queried the SEC over granting a special purpose broker-dealer license to Prometheum Ember Capital, amplifying the tension between legislative and regulatory bodies on the crypto frontier.
