Biden administration recommends stablecoin issuers should be regulated like banks

Yahoo Finance's Jennifer Schonberger breaks down the report on stablecoin regulation

Video transcript

JARED BLIKRE: Welcome back. The president's working group on financial markets, AKA the Plunge Protection Team, has issued a new report on stablecoins. And they want them to be regulated like banks. Here with all the details is our own Jennifer Schonberger. And Jennifer, I know you've had to-- you've had some time to dig through this report here. It was just released at 3:00 PM today. But you got it a little bit ahead of time. What's in it here?

JENNIFER SCHONBERGER: Hey, Jared. Yeah, that's right. The Biden administration looking to recommend stablecoin issuers be regulated as banks. This coming in a long awaited report from the president's working group on financial markets, which is directing Congress to come up with a brand new regulatory framework that would govern stablecoins based on each issuer's risk profile. They are also asking or directing individual regulatory agencies to act using their current authorities. So they will not be given new authorities to regulate stablecoins as they can now.

Now, as specifically for that list of recommendations, the group is urging Congress to mandate stablecoin issuers become banks subject to oversight by the Federal Reserve and the Office of the Comptroller of the Currency. That means they would be subject to capital and liquidity requirements. And as far as becoming-- enacting a bank charter, it could be at a national or a state level. They could also be classified as thrifts.

The administration also recommending that digital wallets be subject to oversight, including restricting digital wallets from lending stablecoins, as well as imposing capital requirements for them. The PWG also recommending FSOC, the Financial Stability Oversight Council, look at designating certain stablecoin activities as systemically important or those that are likely to become systemically important. Stablecoins are now a rapidly growing market, sitting at just over $130 billion in market cap globally. And these recommendations are designed to guard against runs on stablecoins that could pose risks to the financial system, as well as users.

Now, also, I want to note in that report, a stablecoin could be classified as either a security or a commodity, putting jurisdiction at the feet of either the SEC or the CFTC. We know that SEC chair Gary Gensler has likened stablecoins to poker chips in a casino and thinks that they should be classified as securities. We also learned in this report that both the CFTC and the SEC are actively looking at regulation for cryptocurrency exchanges.

Next, members of Treasury will head to Capitol Hill to work with members of Congress on executing these regulations. And we're just getting some statements in from members of Congress as they react to this report. One from Senator Toomey coming in. He tells me, while Congress works on thoughtful legislation, I hope the administration will resist the urge to stretch existing laws in an effort to expand the regulatory authority. He says digital assets have the potential to be as revolutionary as the internet. Jared.

JARED BLIKRE: Yeah, there's nothing like a regulatory turf war, is it? Be nice, Gensler. Come on, everybody play nice. I want to get back to something you said about-- I want to clarify a point. So we're talking about depository institutions. They would be the only ones that can issue or, I guess, take custody of stablecoins. And then I'm just wondering, does that mean that they're all FDIC insured now?

JENNIFER SCHONBERGER: Yeah, a great question, Jared. So yes, they are recommending that only depository institutions issue stablecoins. However when it comes to insuring these, it's really going to depend on the stablecoin issuer and how many Fiat reserves requirements that they're able to meet in order to get that FDIC insurance. So it's possible given certain activities and reserve requirements that it could be FDIC insured up to 250,000. But again, it's going to be on a case by case basis. And the FDIC still looking over all of this to see what exactly-- or how exactly this will play out.

JARED BLIKRE: Incremental progress. We know that you're going to be following it very closely. Yahoo Finance's Jennifer Schonberger, thanks for that report.