News: Sens. Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) published the text of their much-anticipated stablecoin legislation this morning. It’s a move designed in part to nudge along separate negotiations in the House.
The bill, formally dubbed the Lummis-Gillibrand Payment Stablecoin Act, would introduce a broad set of safeguards to a type of digital asset that’s generally used to facilitate other crypto transactions. Read the bill text here.
There’s a lot to unpack in this approach, which is distinct from a 2023 effort from Gillibrand and Lummis designed to address the crypto sector more broadly. This stablecoin bill would:
→ Allow banks and non-bank trust companies to issue stablecoins through dedicated subsidiaries.
→ Ban “unbacked, algorithmic” stablecoins.
→ Introduce capital and one-to-one reserve requirements.
→ Direct the FDIC to develop a regulatory regime to address the failures of stablecoin firms.
→ Permit state financial regulators to authorize and supervise stablecoin-issuing trust companies below $10 billion, a figure based on the outstanding value of a firm’s issued coins.
→ Give the Federal Reserve power to issue enforcement actions unilaterally against stablecoin firms larger than $10 billion but be required to take “joint” action with state authorities below that threshold.
In statements, Gillibrand and Lummis said their bill would preserve the dual banking system by allowing for a mix of both state and federal oversight.
Lummis said the bipartisan bill was “critical to maintaining the U.S. dollar’s dominance” and facilitating financial innovation.
Gillibrand argued the bill ”protects consumers by mandating one-to-one reserves, prohibiting algorithmic stablecoins, and requiring stablecoin issuers to comply with U.S. anti-money laundering and sanctions rules.”
This bill is complicated and weighty, and it will take time for Washington and Wall Street to fully digest. We’ll be following the reaction closely.
Speaking of crypto: One of the industry’s fiercest critics in the Senate has more shots to fire at congressional efforts to better fold crypto into the financial system.
First in Punchbowl News: Sen. Elizabeth Warren (D-Mass.) told the Treasury Department in a letter Tuesday she would back a push to give financial regulators stronger anti-money laundering authorities over crypto. Warren said such tools “must be adopted into any legislation Congress advances” on stablecoins.
Warren points to a Treasury letter from November 2023 in which the government asked for additional authorities to help crack down on criminal activity in and around the crypto sector, including around crypto miners and validators.
More from Warren:
“Folding stablecoins deeper into the banking system will supercharge trading in the crypto market, exploding the opportunities for terrorists and other bad actors to exploit those financing channels to both evade sanctions and receive a limitless stream of untraceable income.”
— Brendan Pedersen
