Democrats Circulate Bill to Rein in Stablecoins

Congressional Democrats are crafting legislation that would establish the first federal rules and prudential backstops for stablecoins, according to draft legislation obtained by American Banker.

The draft legislation — spearheaded by House Financial Services Committee member Rep. Josh Gottheimer, D-N.J. — would limit what institutions may issue stablecoins and would create a separate insurance fund supervised by the Federal Deposit Insurance Corp. to cover losses by nonbank stablecoin issuers. The draft legislation has been circulating on Capitol Hill for the last several weeks but has not been officially released.

While expectations are low for Congress passing significant legislation on cryptocurrencies in the near term, Gottheimer’s bill could emerge as a starting point for lawmakers’ deliberations in the coming months.

Gottheimer’s draft legislation would also make significant changes to the Federal Deposit Insurance Act by directing the FDIC to “establish a Stablecoin Insurance Fund,” which would cover qualified nonbank stablecoin issuers. Insurance limits would match the standard offered to federally regulated banks, currently set at $250,000 per depositor.

The draft defines stablecoins as “any cryptocurrency or other privately issued digital financial instrument that is collateralized on a one-to-one basis by United States dollars.” The legislation also specifies that, if passed, stablecoins would not be considered a type of security or commodity. (American Banker, Feb. 2)