The House Financial Services Committee has pushed back its long-awaited stablecoin bill to September following objections from Treasury Secretary Janet Yellen. This will delay congressional discussions on the subject until after the August recess, which ends on September 5th.
Stablecoins and Bankruptcy
The legislation – negotiated between Committee Chair Maxine Waters (D-Calif) and Patrick McHenry (R-NC 10th District) – was initially scheduled for markup on Wednesday, July 27th. Its intention is to allow banks to issue stablecoins, and to let non-banks do so under oversight from the Federal Reserve.
However, its legislative framework has furrowed the brows of both the Independent Community Bankers of America and the US Treasury. Secretary Yellen called Waters on Friday airing issues about how it would manage stablecoins held in custody on consumers’ behalf.
Treasury reportedly suggested that the bill require wallet custody providers to segregate customers’ assets, ensuring their preservation in a bankruptcy scenario.
This led to a stifling debate on the bill, which lawmakers claimed was near completion as of last week. Democrats attempted to implement the Treasury’s proposed change, while Republicans opposed it.
Caitlin Long, CEO of digital asset bank Custodia, said this exact issue presents an “inherent problem” for non-bank stablecoin issuers. “Special receivership rules for banks & broker/dealers are designed to respect asset segregation,” she tweeted on Monday.
The roadblock highlights Washington’s inability to establish a firm legislative foothold in crypto, alongside the growing partisan divide on the subject.
Senators Lummis (Republican) and Gillibrand (Democrat) deliberately tried to foster cross-party cooperation on their digital asset bill unveiled in June. Though their proposed legislation also creates a stablecoin framework, Lummis believes it will likely not be tabled until 2023.
Stablecoins are arguably the largest blockchain innovation on both Washington’s and the Federal Reserve’s radar.
Both Waters and McHenry called stablecoins a top priority following the President’s Working Group report on the assets in November. It warned that they may pose risks to financial markets, or assist criminals with money laundering if left unregulated.
The central bank has also been exploring central bank digital currency (CBDC) as a potential alternative, or complementary partner to stablecoins. However, McHenry opposed this idea in May, claiming there were no cases for which CBDC issuance was necessary.