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To me, the most questionable aspect of the proposed STABLEAct is the assertion that a non-lending entity that issues a fully collateralized stablecoin requires the same prudential regulation as a bank with Fed access and FDIC insurance. https://twitter.com/rohangrey/status/1334721911842959361
In my view, it shouldn’t because one could issue an instrument using a trust/custodial structure where the collateral is appropriately ring fenced (and would likely benefit from pass-thru FDIC insurance) and would not form part of a defunct institution’s estate.
The bill ignores this possibility. It seeks to amend the definition of deposit in the FDIA by adding a new type of deposit, stablecoins, but never addresses how a stablecoin’s collateral arrangement itself might already meet another limb of that definition.
This can be important because the FDIA’s definition of a “state bank,” which the “depository institution” definition relies on, only covers entities that are ‘in the business of receiving deposits, except for trust funds.’ Note the specific carve out for ‘trust funds.’
the proposed bill ignores this and requires all stablecoin issuers to be Fed members and FDIC insured. But this goes to the fundamental policy concern raised - if a customer has an effective property interest, then the rationale for treating it like a liability doesn’t hold.
There is the potential for slightly trimmed down rules for these ‘banks,’ which aren’t really engaged in the traditional business of banking. But they haven’t been proposed. It’s unclear what they would address beyond existing MT/stored value/prepaid access rules.
Others have already raised many valid concerns about the effect on more esoteric smart contract structures and there are other issues I found with the bill, but just starting from a basic issuer concept, the bill doesn’t seem appropriately tailored to meet the stated policy goal.
The concept of deposit (for purposes of monetary theory) does not neatly match up with the various state and federal decisions that address the characterizations of general v specific deposits under property and contract law. They’re different, and should be acknowledged as such.
@rohangrey + @RaulACarrillo genuinely curious and would appreciate any light you could shed on this. Is the inclusion of trust funds/custodial/bailment-like collateral arrangements deliberate, or a drafting oversight from applying the FDIA definition of deposit too broadly?
For example, consider a money transmitter issuing a USD coin backed 1:1 with customer money held in a trust/FBO account at a bank. It doesn’t seem to materially advance the goal of consumer protection to treat that the same a general deposit -
it is not a title transfer arrangement with the same risks as would apply to the usual forms of deposit liabilities. Why treat title/ownership of money different to title/ownership of other form of non-money stored value, like gold?
Why should a regulation assume that a court will not vindicate a customer’s property rights? If the inclusion of such collateral arrangements is deliberate (e.g. because of a systemic monetary policy concerns), then what is the logic to extending it to foreign currencies?
If the concern is about systemic risk, would all Eurodollar issuers be required to obtain a U.S. banking license under the Bill? They still presumably have a systemic effect/could be perceived as stable by the U.S. general public, regardless of their location outside the U.S.
Lastly - even if I disagree with the proposed Bill, I appreciate the time and effort you've put into responding to various questions since the release and engaging with feedback. Thank you.
