The leader of the Office of the Comptroller of the Currency, a US banking regulator, is continuing the Biden administration's push for bank-style regulation for stablecoin issuers.
On April 8, Michael Hsu, the Acting Comptroller of the Currency, spoke to an audience at Georgetown Law School on his “Thoughts on the Architecture of Stablecoins.”
Effectively, Hsu maintained the President's Working Group's proposal that any new law should limit stablecoin issuance to "insured depository institutions," a category that is usually synonymous with banks. Important to note is that Hsu, along with most of the major leaders of US financial regulators, was part of the team that assembled the PWG report.
Hsu seemed to reject recent alternate proposals that would create multiple licensing paths for stablecoin issuance, saying "in my experience, the wider the variability, the more likely a risky issuer blows itself up, sparking contagion across peers."
However, he argued that such a category could be more flexible for stablecoins that do not operate as investment vehicles:
"A banking approach would be more effective. Some have expressed concerns, however, about undue burden and inefficiency. If a stablecoin entity were tightly limited to just issuing stablecoins and holding reserves to meet redemptions, I would agree that the full application of all bank regulatory and supervisory requirements would be overly burdensome. Provided that the activities and risk profile of a stablecoin issuing bank could be narrowly prescribed, a tailored set of bank regulatory and supervisory requirements could balance stability with efficiency."
Nellie Liang, the Treasury official who spearheaded the PWG report, made similar arguments that banking charters could themselves be more flexible than had been generally acknowledged. But a central dispute here is that US law only requires banks to keep a small fraction of their deposits in instantly redeemable cash.
Though different stablecoins operate in different ways, the common practice among major operators has become to hold full reserves in cash or short-term Treasury securities. A notable exception is Tether's holdings of unidentified commercial paper, a practice that USDC experimented with until recently.
While Hsu maintained skepticism towards the crypto industry's long-term promise, he did say:
"It is hard to ignore the rapid growth of the developer community, market signals about blockchain firms’ long-term potential, and pronouncements and actions from a range of policymakers and governments."