Speaking virtually at a Tuesday hearing titled “Digital Assets and the Future of Finance: The President’s Working Group on Financial Markets’ Report on Stablecoins,” North Carolina Representative and ranking committee member Patrick McHenry asked the committee to consider state-level regulatory frameworks in lieu of a comprehensive federal law on stablecoins. In response to McHenry, Jean Nellie Liang, the undersecretary for domestic finance at the U.S. Treasury Department, said there was no explicit law governing stablecoins and digital assets at the federal level but rather a regulatory framework which had been applied to “various aspects” of tokens like consumer protection laws.
Liang added that during the development of a November report from the President’s Working Group on Financial Markets, or PWG, officials consulted with state regulators to recommend what level of federal oversight, if any, would be required for innovative technology like stablecoins. The group concluded that stablecoin issuers in the U.S. should be held to the same standards as insured depository institutions including state and federally chartered banks.
“The PWG report believes that a more consistent, less fragmented framework is preferred,” said Liang, adding that the group’s proposal could apply to a state-chartered or federal-chartered bank. “The state regulatory system is fragmented. There is an issuer, and then there are the custodial wallet providers, the other parts of the arrangement, that are subject to different kinds of regulations. There is no plenary oversight of the entire arrangement.”
McHenry pushed back against this narrative, saying to regulate stablecoins with an approach like a “single regulator at the federal level for all financial institutions” would likely not be a success. He added that to do so would be akin to “like saying we only have federal banks” instead of different types of financial institutions subject to local regulations including state-chartered credit unions and banks.
“You consulted with these regulators but there was no mention of an existing state regulatory framework,” said McHenry, addressing Liang. “We know that New York is the most active, and they have a very safe but very robust set of regulations and disclosures, but there’s no mention of New York. There are no lessons learned from the states included in this report.”
California Representative Brad Sherman, who has made several anti-crypto statements during his time in office, pushed back against McHenry’s proposal for essentially bypassing federal regulations on stablecoins:
“The ranking member talks about state regulation. I’ll just point out that imagine if we didn’t have any federal regulation of state-chartered banks: the FDIC didn’t propose any capital rules, the FDIC didn’t do any audits. It would only be a matter of time before there was a race to the bottom and we would have banks operating in my state chartered by some other small state and those banks would be going bankrupt because they would have found the jurisdiction that had the lowest capital requirements.”
Related: US Treasury official beckons new stablecoin regulations
Still ongoing at the time of publication, the House committee hearing gave lawmakers on both sides of the aisle a platform for addressing concerns on stablecoins. Missouri Representative Blaine Luetkemeyer said that though many cryptocurrencies could threaten the dominance of the U.S. dollar, stablecoins backed by dollars presented a “unique opportunity” for the country’s fiat currency to remain the world’s reserve currency. He criticized the PWG report for not including global competitiveness in researching its recommendations.