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A U.S. effort to regulate stablecoins favors policing them like lenders, which could jeopardize the future of tokens from firms that refuse to seek federal banking licenses.
Led by the Treasury Department, the President’s Working Group on Financial Markets is aiming to issue a report on stablecoins by the end of the month. An expected recommendation is that Congress establish a limited charter allowing new crypto banks to manage stablecoins as deposits, according to a senior official involved with the report who asked not to be named because it hasn’t been finalized.
The group of regulators has also been considering urging the Financial Stability Oversight Council to examine whether stablecoins pose a systemic threat. That option would be another approach to impose bank-like rules on the tokens, particularly if lawmakers fail to act.
Read more: Stablecoins Face Crackdown as U.S. Discusses Risk Council Review
The Wall Street Journal earlier reported that Treasury is considering ways to regulate stablecoins like banks.
Anxieties in Washington have been ratcheting up dramatically over stablecoins, which are pegged to the U.S. dollar and other fiat currencies to avoid the wild price swings of cryptocurrencies like Bitcoin. Federal officials are worried that an investor run could trigger a financial panic and that crypto firms are using stablecoins to offer banking services without consumer protections.
Read more: Treasury to Flag Stablecoin Perils as U.S. Readies Clampdown
Relying on Congress or FSOC would likely be a slow process for bringing oversight to stablecoins, which already have a market value exceeding $120 billion. Treasury officials have also been considering shorter-term alternatives to address the unregulated tokens in the interim, people familiar with the work have said, but details of those options aren’t clear.
Imposing banking rules could run counter to Securities and Exchange Commission Chair Gary Gensler’s recent campaign to declare many cryptocurrencies securities that should follow SEC rules.
A few crypto firms have already sought and won conditional bank charters from the Office of the Comptroller of the Currency, but it’s uncertain whether those licenses will allow them to issue stablecoins in a way that satisfies regulators. The OCC has more recently slammed the brakes on granting such charters, and Acting Comptroller Michael Hsu has publicly warned that cryptocurrencies could threaten the financial system.
