Republican trio says Fed is undermining progress on stablecoin bill

A trio of Republican lawmakers say the Federal Reserve’s recent action to bolster its oversight of banks’ crypto and stablecoin ties is undermining its advancement of their bill to regulate stablecoins. 

The central bank is "effectively" preventing banks from issuing payment stablecoins, the lawmakers said on Monday in a letter to Fed Chair Jerome Powell. House Financial Services Committee Chair Patrick T. McHenry, R-N.C., Rep. Bill Huizenga, R-Mich., and Rep. French Hill, R-Ark., signed the letter. 

"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," they said. 

The Federal Reserve published a letter, SR 23-8, for supervised state banks looking to engage in stablecoin activity earlier this month. The central bank said those banks wanting engage in stablecoin activity need to have certain controls in place and get a "written notification of supervisory nonobjection from the Federal Reserve" before moving forward. 

The central bank also launched the "Novel Activities Supervision Program," SR 23-7,  to enhance its supervision of all banking organizations it oversees focusing on crypto, distributed ledger technology as well as "technology-driven partnerships with nonbanks to deliver financial services to customers."

"While the supervisory non objection process is masked as guidance outlining a process by which these activities can be permissible, it is clear the Fed does not intend to allow any such activity, at least as it relates to public, permissionless blockchains," the lawmakers said. 

The three also posed a list of questions to the Federal Reserve, including whether it plans to consult state banking regulators, specifically when the state banking regulator allows certain payment stablecoin activities.

The lawmakers said they want the central bank to respond by Sept. 29. A spokesperson for the bank told The Block that it received the letter and intends to respond.

Stablecoin bill 

The letter comes as the House Financial Services Committee advanced a comprehensive regulatory framework for stablecoins, though bipartisan negotiations hit a snag in July. 

"A regulatory framework established by Congress will better protect consumers and provide certainty to market participants," the Republican lawmakers said in the letter. 

"Yet, instead of working with Congress to establish a workable regime, less than two weeks after the Committee's action, the Fed released SR 23-7 and SR 23-8," they added.