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Patrick McHenry implied that the U.S.' regulation of stablecoins with a âsingle regulator at the federal levelâ would likely fail.
Whether regulations on stablecoins and digital assets should be addressed at the state or federal level was the topic of discussion among at least two U.S. lawmakers in a hearing for the House Committee on Financial Services.
Speaking virtually at a Tuesday hearing titled âDigital Assets and the Future of Finance: The Presidentâs Working Group on Financial Marketsâ Report on Stablecoins,â North Carolina Representative and ranking committee member Patrick McHenry asked the committee to consider state-level regulatory frameworks in lieu of a comprehensive federal law on stablecoins. In response to McHenry, Jean Nellie Liang, the undersecretary for domestic finance at the U.S. Treasury Department, said there was no explicit law governing stablecoins and digital assets at the federal level but rather a regulatory framework which had been applied to âvarious aspectsâ of tokens like consumer protection laws.
Liang added that during the development of a November report from the Presidentâs Working Group on Financial Markets, or PWG, officials consulted with state regulators to recommend what level of federal oversight, if any, would be required for innovative technology like stablecoins. The group concluded that stablecoin issuers in the U.S. should be held to the same standards as insured depository institutions including state and federally chartered banks.
âThe PWG report believes that a more consistent, less fragmented framework is preferred,â said Liang, adding that the groupâs proposal could apply to a state-chartered or federal-chartered bank. âThe state regulatory system is fragmented. There is an issuer, and then there are the custodial wallet providers, the other parts of the arrangement, that are subject to different kinds of regulations. There is no plenary oversight of the entire arrangement.â
Jean Nellie Liang speaking at Feb. 8Â House Committee on Financial Services hearing
McHenry pushed back against this narrative, saying to regulate stablecoins with an approach like a âsingle regulator at the federal level for all financial institutionsâ would likely not be a success. He added that to do so would be akin to âlike saying we only have federal banksâ instead of different types of financial institutions subject to local regulations including state-chartered credit unions and banks.
âYou consulted with these regulators but there was no mention of an existing state regulatory framework,â said McHenry, addressing Liang. âWe know that New York is the most active, and they have a very safe but very robust set of regulations and disclosures, but thereâs no mention of New York. There are no lessons learned from the states included in this report.â
California Representative Brad Sherman, who has made several anti-crypto statements during his time in office, pushed back against McHenryâs proposal for essentially bypassing federal regulations on stablecoins:
âThe ranking member talks about state regulation. Iâll just point out that imagine if we didnât have any federal regulation of state-chartered banks: the FDIC didnât propose any capital rules, the FDIC didnât do any audits. It would only be a matter of time before there was a race to the bottom and we would have banks operating in my state chartered by some other small state and those banks would be going bankrupt because they would have found the jurisdiction that had the lowest capital requirements.â
Related: US Treasury official beckons new stablecoin regulations
Still ongoing at the time of publication, the House committee hearing gave lawmakers on both sides of the aisle a platform for addressing concerns on stablecoins. Missouri Representative Blaine Luetkemeyer said that though many cryptocurrencies could threaten the dominance of the U.S. dollar, stablecoins backed by dollars presented a âunique opportunityâ for the countryâs fiat currency to remain the worldâs reserve currency. He criticized the PWG report for not including global competitiveness in researching its recommendations.
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