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 โDigital Assets and the Future of Finance: The Presidentโs Working Group on Financial Marketsโ Report on Stablecoins,โ 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 โvarious aspectsโ of tokens like consumer protection laws.
Liang added that during the development of a November report from the Presidentโs 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.
โThe PWG report believes that a more consistent, less fragmented framework is preferred,โ said Liang, adding that the groupโs proposal could apply to a state-chartered or federal-chartered bank. โThe 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.โ
McHenry pushed back against this narrative, saying to regulate stablecoins with an approach like a โsingle regulator at the federal level for all financial institutionsโ would likely not be a success. He added that to do so would be akin to โlike saying we only have federal banksโ instead of different types of financial institutions subject to local regulations including state-chartered credit unions and banks.
โYou consulted with these regulators but there was no mention of an existing state regulatory framework,โ said McHenry, addressing Liang. โWe know that New York is the most active, and they have a very safe but very robust set of regulations and disclosures, but thereโs no mention of New York. There are no lessons learned from the states included in this report.โ
California Representative Brad Sherman, who has made several anti-crypto statements during his time in office, pushed back against McHenryโs proposal for essentially bypassing federal regulations on stablecoins:
โThe ranking member talks about state regulation. Iโll just point out that imagine if we didnโt have any federal regulation of state-chartered banks: the FDIC didnโt propose any capital rules, the FDIC didnโt 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.โ
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 โunique opportunityโ for the countryโs fiat currency to remain the worldโs reserve currency. He criticized the PWG report for not including global competitiveness in researching its recommendations.
