Senators respond to US stablecoin report, setting stage for coming debate

Quick Take

  • The President’s Working Group’s report on stablecoins earlier today provoked a range of responses from legislators and regulators. 
  • The boundaries of the debate on stablecoin policy are taking shape as Washington players stake their positions.

Three U.S. senators released statements in response to Monday's government report on stablecoins from the Biden administration.

Senators Sherrod Brown, Pat Toomey and Cynthia Lummis all reacted to the report in statements that strongly indicate the boundaries of the coming debate on stablecoins. All three sit on the Senate Banking Committee, with Brown and Toomey as, respectively, the chair and ranking member.

The report notably included recommendations for new legislation. As this report has been the subject of lengthy interest from Congress, these responses from senators representing both parties will likely set the tone of the debate over any legislation that may result from today's recommendations. Most notable among those recommendations was the need to restrict stablecoin issuance to firms that are insured depository institutions — effectively, banks with FDIC insurance.

Brown, a political ally of Treasury Secretary Janet Yellen as well as a long-term colleague of President Joe Biden, said:

"We must work to ensure that any new financial technologies are subject to all of the laws and regulations that protect investors, consumers, and markets, and that they compete on a level playing field with traditional financial institutions."

Critical to the framing of Brown's statement is the placement of new technologies like stablecoins within existing statutes. While today's recommendations included a request for new legislation, the reach of existing authority is the subject of much debate.

Given the political realities of Congress today during an extended period of partisan strife -- resulting in a broad slowdown of successful legislation outside major packages -- neither financial regulators nor market participants likely want to hold their breath until new law emerges.

The administration has been cautious about any suggestion on limits to existing regulatory authority over crypto. Especially, they have maintained that regulators like the Securities and Exchange Commission and Commodity Futures Trading Commission should be more involved in stablecoins. It is, therefore, no surprise that SEC Chairman Gary Gensler promised to do just that in his own statement:

"While Congress and the public evaluate this report, we at the SEC and our sibling agency, the Commodity Futures Trading Commission, will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable."

By comparison, Senator Toomey's statement said:

"As the Biden administration acknowledges in its report, it is the responsibility of Congress to clarify whether, and to what extent, federal agencies have jurisdiction over stablecoins. While Congress works on thoughtful legislation, I hope the administration will resist the urge to stretch existing laws in an effort to expand its regulatory authority."

Like Toomey, Senator Lummis highlighted that the President's Working Group requires legislation to get its central request into statute: "As the report clearly states, though, Congress will, and should, have the final say."

In addition to reasserting that these decisions belong in the hands of lawmakers rather than regulators, Lummis said that the policies suggested today would lock out new players in the market. 

"However, proposing that only insured depository institutions may issue a stablecoin is misguided and wrong. As of now, it’s not even clear that FDIC insurance is available for stablecoins," Lummis continued. "I am concerned that this recommendation will only serve to benefit big banks and will restrict innovation. We should all be able to agree that startups should have the same chance as Wall Street institutions to succeed."

Central to the debate is the framing of what is and is not already law.

Among financial regulators, Gensler has been particularly vocal in categorizing a widening circle of crypto projects within existing definitions of securities. Yet that has not translated into a noticeable uptick in, say, legal enforcement actions by the SEC. 

Similarly, Michael Hsu, Acting Comptroller of the Currency, made a statement today that drew a comparison between the "wildcat banks" of the 19th century that led to the creation of the Office of the Comptroller of the Currency and the stablecoin market today. Hsu's past remarks have centered around this sentiment. 

Rostin Behnam, Biden's nominee to run the CFTC, has similarly both requested greater statutory authority over crypto while framing that authority as within existing provisions of the Commodity Exchange Act. 

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