The Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), the Vice Chairman of the Financial Services Committee and Chairman of the Digital Assets, Financial Technology and Inclusion Subcommittee, French Hill (AR-02), and the Chairman of the Oversight and Investigations Subcommittee, Bill Huizenga (MI-04), sent a letter to Federal Reserve Board (Fed) Chairman Jerome Powell objecting to the Fed’s efforts to undermine Congress’ progress on legislation to establish a regulatory framework for payment stablecoins through recent supervision and regulation letters.
Read the full letter here.
Read key excerpts from the letter below:
“Dear Chair Powell:
“We are writing to express concerns regarding the Federal Reserve Board’s (‘Fed’) recent supervision and regulation letters titled ‘Creation of Novel Activities Supervision Program’ (‘SR 23-7’) and ‘Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens’ (‘SR 23-8’), both of which were issued on August 8, 2023. We are concerned that these actions are being taken to subvert progress made by Congress to establish a payment stablecoin regulatory regime. Moreover, if these letters are left in place, they will undoubtedly deter financial institutions from participating in the digital asset ecosystem.
“Congress understands the need to provide regulatory certainty for payment stablecoins and the broader digital asset ecosystem. A regulatory framework established by Congress will 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. Yet, instead of working with Congress to establish a workable regime, less than two weeks after the Committee’s action, the Fed released SR 23-7 and SR 23-8.
“In fact, the Committee’s approach creates a clear and permissible framework for regulated institutions, including banks under the Fed’s purview, to issue payment stablecoins. The legislation imposes strict standards on all payment stablecoin issuers regarding reserves, disclosures, redemptions, liquidity, and risk management that will ensure the integrity of the payment stablecoin. SR 23-7 and SR 23-8, however, run counter to this approach.
“By issuing the letters, the Fed has chosen to effectively prevent banks from issuing payment stablecoins—or engaging in the payment stablecoin ecosystem. While the supervisory nonobjection 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.
“Furthermore, the Novel Activities Supervision Program (‘Program’) created under SR 23-7 appears designed to impose additional regulatory burdens on banking institutions to engage with crypto-assets and to provide the Fed with additional tools to deny crypto-asset related activities. Consequently, this approach, when taken in conjunction with previous policy statements and Fed decisions, will ultimately lead to a de facto prohibition on banks engaging with the digital asset ecosystem.
“Finally, SR 23-7 and SR 23-8 were not issued in accordance with the notice and comment process as required under the Administrative Procedure Act. This guidance represents an effort by the Fed to set policy without being held accountable to market participants and the public, which is unacceptable.”
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