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US lawmakers propose bank-like regulation for stablecoin issuers

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Two US lawmakers, Maxine Waters and Patrick McHenry, are working together on a bill that would introduce strict banking rules for stablecoins. Wall Street Magazine informed July 20.

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Stablecoin issuers will reportedly be forced to back their reserves with conservative assets such as cash and U.S. Treasury bonds, which would not be vulnerable to market panics under the proposed law.

Lawmakers Concerned About Stablecoin Vulnerability

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US lawmakers are concerned that stablecoins are vulnerable to bank withdrawals if there is doubt about their issuer’s ability to redeem their tokens 1:1 against the US dollar.

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Tether, the issuer of USDT, faced a massive withdrawal in May when it had to withdraw about $10 billion in two weeks.

According to the WSJ, this could lead to a situation where the stablecoin issuer will be forced to liquidate its reserves, thus putting even more downward pressure on the financial industry as a whole.

Treasury Secretary Janet Yellen has previously expressed concern that stablecoins should be properly regulated to mitigate any “current and future risks”.

Stablecoin issuers will be treated like banks

The new bill requires stablecoin issuers to be treated more like banks rather than money market funds.

Banks in the US face tighter regulatory oversight and are required to comply with federal agency requirements to protect their customers’ funds.

Stablecoin issuers must comply with federal oversight along with capital and liquidity rules, according to the report.

Meanwhile, the bill also aims to limit the ability of non-financial companies to issue stablecoins, a move aimed at separating financial firms from commercial enterprises or technology firms.

The Federal Reserve will become a regulator

The report states that the bill positions the Federal Reserve as the regulator of “payment stablecoin issuers.”

The Fed was preferred over the Securities and Exchange Commission (SEC) because it handles financial stability risks better.

The Wall Street Journal reported that the Fed has intervened twice in the money-fund crisis in the last 12 years.

The report added that the SEC expressed concern that the bill may not address stablecoin trading and may not provide sufficient regulatory oversight to monitor the platforms on which these transactions take place.

The head of the SEC, Gary Gensler, has spoken about stablecoins in several interviews and compared them to poker chips.

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