Senator Pat Toomey, ranking member of the Senate Banking Committee, says he’s not on board with the Biden administration’s proposal to regulate stablecoin issuers as banks, as Capitol Hill moves to adapt existing securities law to accommodate the booming cryptocurrency sector.
The President’s Working Group on Financial Markets earlier this week recommended that Congress come up with a new framework to regulate stablecoins, urging lawmakers to mandate that only banks can issue stable coins.
When asked by Yahoo Finance whether he supports the administration’s proposals, the Pennsylvania Republican acknowledged one of the proposal’s central arguments: that Congress needs to act.
However, his remarks presaged what is likely to be a spirited debate about cryptocurrency regulation, highlighting how lawmakers have found little consensus on how to proceed.
“It is not at all obvious to me that the optimal outcome is to treat all stablecoin issuers as though they’re banks, or force them to become banks,” Toomey said in an exclusive interview.
The senator added: “I can see an argument for that, but I can see arguments for treating stablecoin issuers very differently as well…Congress ought to have this debate.”
The administration’s recommendations are intended to curtail risks regulators’ worry stablecoins – digital currencies with values tied to fiat currencies like the U.S. dollar or short-term securities — pose to the financial system.
Stablecoins are used by traders to get in and out of trades, settle trades and are increasingly being used for lending, or borrowing of other digital assets on cryptocurrency exchanges. Regulators worry that if the value of cryptocurrencies plunge suddenly, investors could yank their money out, leading to a run on stablecoins that could hurt the financial system and users.
Officials are also trying to set rules to ensure that adequate liquidity will exist for stablecoin use, if it is widespread in the payment system. Additionally, like ordinary FDIC-insured bank deposits, users should be able to get their stablecoins back on demand.
While Toomey doesn’t think stablecoins should be regulated as banks, he says he hasn’t come to a final conclusion on how the tokens should be policed. He did say there should be transparency and disclosure about the assets that back a stablecoin.
“Beyond that, I think we have to really think long and hard before we put some onerous regulatory regime on a new technology,” Toomey told Yahoo Finance.
He argued that one of the dangers is that the recommendations could give big banks an unfair advantage at the expense of startups.
“When I read through the report, it does kind of have the feel of a report issued by bankers, or by people who have a very bank-centric mindset, and I think we should not automatically go down that road,” he added.
Toomey also expressed doubt that the Financial Stability Oversight Council (FSOC) should be tasked with designating stablecoin activities as systemically risky.
“It’s a big mistake to suggest that in the absence of imminent Congressional action, the FSOC should designate this activity that takes us down the wrong road,” she added.
The new rules, if implemented, could freeze out Facebook (newly christened as Meta) from issuing its stablecoin Diem.
The proposals underscore that while banks should be the only entities issuing stablecoins, corporations shouldn’t intertwine their business with stablecoin issuers either. Toomey says that’s an important question raised by the report.
“It’s not obvious to me that we are ready to come to that conclusion. I can see, think of arguments both for and against a large non-banking entity issuing a stablecoin,” he added.
