Lawmakers Challenge the Federal Reserve's New Stablecoin Guidelines
Several US lawmakers have challenged the regulatory guidelines set forth by the Federal Reserve for stablecoins, arguing that these guidelines could potentially discourage financial institutions from participating in the evolving digital asset ecosystem. According to these lawmakers, the Federal Reserve's actions could hinder banks from issuing payment stablecoins or being involved in the payment stablecoin ecosystem.
Federal Reserve's Actions Draw Criticism from US Representatives
Recently, three prominent US representatives, namely Patrick McHenry (R-NC), chairman of the House Financial Services Committee; French Hill (R-AR), chairman of the Subcommittee on Digital Assets; and Bill Huizenga (R-MI), chairman of the Subcommittee on Oversight and Investigations, sent a letter addressed to Federal Reserve Chairman Jerome Powell, expressing their concerns about the regulatory framework for stablecoins. This letter, dated August 23, outlines their reservations about the Federal Reserve's approach to stablecoin regulation, and its potential impact on the progress made by Congress in this area.
In a statement on the social media platform X, Congressman Hill shared:
"I sent a letter along with Rep. Patrick McHenry and Rep. Bill Huizenga to the Federal Reserve objecting to their efforts to undermine the Financial Services Committee’s progress on stablecoin legislation. The Fed has chosen to effectively prevent banks from issuing payment stablecoins."
Lawmakers Raise Concerns Over Recent Regulatory Letters
The lawmakers expressed their concerns about two specific Supervision and Regulation Letters issued by the Federal Reserve on August 8. These letters are titled "Creation of Novel Activities Supervision Program" (SR 23-7) and "Supervisory Non-Objection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens" (SR 23-8).
The legislators argue that these letters could counteract the legislative progress made to establish a regulatory framework for payment stablecoins and could inadvertently discourage financial institutions from embracing digital assets. The lawmakers said:
"We are concerned that these actions are being taken to subvert progress made by Congress to establish a payment stablecoin regulatory regime. Moreover, if these letters are left in place, they will undoubtedly deter financial institutions from participating in the digital asset ecosystem."
Pointing to a recent bipartisan bill passed by the House Committee on Financial Services, known as the "Clarity for Payment Stablecoins Act," the representatives expressed disappointment that the Federal Reserve issued SR 23-7 and SR 23-8 shortly after the committee's action. This, they believe, could undermine the collaborative effort between Congress and the Federal Reserve to establish effective regulation.
Federal Reserve's Actions and Their Implications
The lawmakers further scrutinized the Federal Reserve's "Novel Activities Supervision Program," suggesting that it seems designed to impose additional regulatory requirements on banking institutions engaging with crypto assets.
They also criticized the "lack of adherence to the notice and comment process as mandated by the Administrative Procedure Act in the issuance of SR 23-7 and SR 23-8. This guidance allows the Federal Reserve to set policy without being accountable to market participants and the public, which is unacceptable."
Request for Clarity and Accountability
In the concluding section of their letter to Chairman Powell, the lawmakers presented a series of questions related to SR 23-7 and SR 23-8. These questions are aimed at shedding light on how the Federal Reserve intends to "ensure a fair and consistent process for determining which banking organizations will undergo supervisory examinations." Additionally, the lawmakers requested documents and communications relevant to these regulatory letters, emphasizing the need for transparency and accountability.
Closing Thoughts
The lawmakers underscored their concern that the Federal Reserve's actions could effectively obstruct banks from participating in the payment stablecoin ecosystem. They said:
"By issuing the letters, the Fed has chosen to effectively prevent banks from issuing payment stablecoins or engaging in the payment stablecoin ecosystem."
This growing opposition to the Federal Reserve's stablecoin regulatory guidelines raises important questions about the potential consequences for digital innovation and financial progress.
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