U.S. Reps. French Hill (R-AR) and Bill Huizenga (R-MI) voiced concern that recent actions taken by the Federal Reserve Board could subvert progress made by Congress to establish a payment stablecoin regulatory regime.
Specifically, the lawmakers say that the Fed’s supervision and regulation letters issued on Aug. 8 — titled “Creation of Novel Activities Supervision Program” and “Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens” — also could deter financial institutions from participating in the digital asset ecosystem.
“By issuing the letters, the Fed has chosen to effectively prevent banks from issuing payment stablecoins — or engaging in the payment stablecoin ecosystem,” the lawmakers wrote in an Aug. 23 letter sent to Fed Chairman Jerome Powell. “While the supervisory non-objection process is masked as guidance outlining a process by which these activities can be permissible, it is clear the Fed does not intend to allow any such activity, at least as it relates to public, permissionless blockchains.”
Joining Rep. Hill and Rep. Huizenga in signing the letter was U.S. Rep. Patrick McHenry (R-NC), chairman of the U.S. House Financial Services Committee, which has jurisdiction to oversee the activities of the Board of Governors of the Federal Reserve System. Reps. Hill and Huizenga also serve on the Financial Services Committee.
In their letter, the members also pointed out that Congress understands the need to provide regulatory certainty for payment stablecoins and the broader digital asset ecosystem to better protect consumers and provide certainty to market participants.
“This recognition was the impetus for the Clarity for Payment Stablecoins Act, a bill that was favorably reported by the House Committee on Financial Services on a bipartisan basis,” they wrote. “Yet, instead of working with Congress to establish a workable regime, less than two weeks after the committee’s action, the Fed released” its supervision and regulation letters.
The legislation, H.R. 4766, which Rep. McHenry sponsored on July 20, would impose strict standards on all payment stablecoin issuers regarding reserves, disclosures, redemptions, liquidity, and risk management that will ensure the integrity of the payment stablecoin, according to the lawmakers.
But the Fed’s new actions “run counter to this approach,” they wrote.
To further understand the Fed’s rationale and intentions pertaining to its newly issued supervision and regulatory letters, Rep. Hill, Rep. Huizenga, and their colleague requested that Powell answer several questions, such as how the Fed intends to implement a fair and consistent process for determining which banking organizations will be subject to supervisory examination of novel activities, and how the Fed will evaluate a state member bank’s proposal to test payment stablecoin activities, among several others.