Stablecoins Don’t Need to be Issued by Banks: Federal Reserve Board Head

Stablecoins do not need to subject to full banking regulation and while they carry special risks, market participants apart from banks should be able to issue them, the Federal Reserve Board Governor Christopher Waller has said.

Responding to the release of a report (above) by the President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), which called upon Congress to introduce legislation promptly to regulate stablecoins, he said in some respects stablecoins were just a newer version of bank deposits.

The Report on Stablecoins, released on 1 November, recommended that stablecoins be subject to banking prudential regulatory and that only banks be able to issue them. However, speaking at the virtual 2021 Financial Stability Conference in Cleveland, Ohio, Waller said that regulating stablecoins, which have attracted increased attention to due to the risk they carry, does not necessarily mean “imposing the full banking rulebook, which is geared in part toward lending activities, not payments”.

If an entity issued stablecoin-linked liabilities as its sole activity; if it backed those liabilities only with very safe assets; if it engaged in no maturity transformation and offered its customers no credit; and if it were subject to a full program of ongoing supervisory oversight, covering the full stablecoin arrangement, this might provide enough assurance for these arrangements to work, he said.

His full argument is here in this speech.

He also expressed skepticism over the need for a central bank digital currency (CBDC), which has been discussed as a possibility in the US as well as elsewhere by world central banks, preferring to leave it to the market to drive innovation.