How We Can Regulate Stablecoins Now--Without Congressional Action

Abstract

This White Paper presents a proposal for federal regulation of stablecoins under existing law. Following the recommendations of the 2021 President’s Working Group’s Stablecoin Report, we propose the creation of a federal framework for the issuance of stablecoins within the regulatory framework for insured depository institutions. Under current law, the Comptroller of the Currency could authorize a national trust bank charter, organized as an operating subsidiary of an insured depository institution, to create stablecoins through the use of a dedicated trust vehicle. With our proposal, the Comptroller would also adopt standards limiting the investment of stablecoin reserves to high quality assets and address redemptions and operational resilience, among other matters. The creation of this federal regulatory structure puts the “stable” in stablecoins, offering consumers a far higher level of protection than the state-level regulatory frameworks that currently govern most stablecoin issuers while providing protection against financial stability risks should the stablecoin market continue to grow. Our approach could promote increased competition in payments services and potentially safeguard the role of the dollar in international finance. While our framework would not be mandatory, we believe our approach would provide substantial benefits to stablecoin sponsors, increasing the likelihood that they would opt into the framework.

Although new legislation is not needed, coordination across government agencies would be necessary to implement our recommendations effectively. The federal banking agencies—the Federal Reserve Board, the OCC, and the FDIC—would all have to support this stablecoin framework and buy-in from both the SEC and CFTC would be highly desirable. We recommend that a working group of the Financial Stability Oversight Council quarterback this coordination. Our proposal is self-consciously incremental and cautious, imposing stringent and overlapping safeguards and preserving the separation of banking and commerce. If successful, our proposal might later be liberalized in a variety of ways. The experience gained in developing our approach could also be useful in drafting more comprehensive legislation.

What we propose here is simply a sensible but significant first step.