Saying they are deeply concerned about the risk stablecoin payment issuers pose to the overall financial system, the American Bankers Association and three other bankers associations submitted recommendations for what federal regulators should include in their annual report to Congress on stablecoins.
The Genius Act mandates a yearly report that, among other things, requires “a description of the potential financial stability risks posed to the safety and soundness of the broader financial system by payment stablecoin activities.” In a joint letter, the associations urged regulators to include an assessment of the following risks in the report:
- The vulnerability of payment stablecoin issuers to runs;
- The contagion risk from the rapid redemption of payment stablecoins both within and outside the stablecoin industry;
- The effect of yield-like arrangements on stablecoin growth and the reduction in the availability of credit due to such growth;
- The risks from stablecoin lending;
- The risks from the Genius Act’s multi-regulator framework creating opportunities for regulatory arbitrage that, left unaddressed, could concentrate risk in less-supervised corners of the payment stablecoin market and undermine financial system safety and soundness.
The primary regulator of payment stablecoins should use the report to inform potential amendments to their respective regulations of the sector, the associations said. Regulators should also commit to updating their regulations as appropriate, although in some cases, other agencies or Congress may need to take action to address the risks posed by stablecoins.
