White paper: Banks have clear legal authority to issue stablecoins

Issuing digitized deposits and engaging in stablecoin-related activities fall within the existing legal authority of banks, according to a white paper published today by The Clearing House. The payments company analyzed the legal authority for banks’ engagement in stablecoin by focusing largely on two OCC letters from 2020 and 2021, which concluded that banks could engage in cryptocurrency activities if they first demonstrated they had adequate controls in place. Despite that fact, “federal regulators have to date effectively precluded federally regulated banks from offering stablecoins or other digital asset-related services,” according to the white paper.

The authority to issue and exchange stablecoins is based on language in the National Bank Act and consistent with numerous legal decisions and regulatory determinations regarding a bank’s authority to issue payments and deposit instruments, the authors wrote. In addition, national banks have always been permitted to develop innovative deposit and payment mechanisms, as receiving deposits and acting as financial intermediaries are core functions of banks.

“Consumers have made it plain that they find value in the ability to hold and make payments using stablecoins,” the authors wrote. “As such, the prudential federal bank regulators must now choose between one of two options: allow banks to begin issuing stablecoins within the federal regulatory perimeter, or continue to allow only nonbank entities to meet this emerging consumer demand without coordinated federal oversight. From a risk management perspective, regulators should unequivocally pick the former.”