You are currently viewing Community Bankers Concerned about Stablecoin Legislation

Over recent weeks, two Congressional coalitions have been working to get legislation included in must-pass bills to provide for a regulatory framework (and the legitimization) for stablecoins. IBAT believes that the ramifications of legitimizing stablecoins could have disastrous effects on the banking industry and the United States economy.

Stablecoins, as you’ll recall, are digital assets that are pegged to the value of a real asset (usually a fiat currency). Most often, they are reserved by high-quality liquid assets like Treasury bonds and cash.

In last week’s edition of IntraFi’s Banking with Interest podcast, Rob Blackwell, Chief Content Officer and Head of External Affairs, sat down with Professor Hillary Allen, a law professor at American University Washington College of Law, to talk about the potential ramifications of legitimizing stablecoins. Of the concerns raised, IBAT believes these are most pertinent:

  1. Stablecoins will take liquidity out of the U.S. banking system. That liquidity will go into reserves that cannot be leveraged, thereby reducing lending capacity from the economy as a whole.
  2. Stablecoins could create a mechanism for the blending of banking and commerce. While retailers are currently unable to own a bank, they could own a stablecoin issuer, allowing them to create a financial services company through which they transact business, including consumer transactions. This could make these very large firms (like Meta, Amazon) even more engrained in American’s lives and, effectively, too big to fail.
  3. Stablecoin legislation has blurred the lines between banking and crypto regulators. A Senate bill recently introduced would give the FDIC receivership and resolution authority for stablecoin issuers, without allowing the regulator to charge these companies for deposit insurance.

Ultimately, the purpose for stablecoins is to help facilitate speculative trading of crypto assets. Stablecoins serve as the “stable” settlement mechanism that speculative traders use to go in and out of other cryptocurrency assets without incurring costly fees to transfer those assets back to dollars.

IBAT opposes stablecoin legislation, believing that legitimization of these assets introduces far too many questions, uncertainties and potential unintended consequences with almost no public good.

Please keep a close out for any call to action for IBAT members to engage on this issue if we see movement in Washington, D.C.