Leading members of the Republican House Financial Services Committee have expressed deep concern over recent actions by the Federal Reserve, which they believe undermine progress made by Congress in creating a regulatory framework for stablecoins for payments.
in a letter In a letter to Fed Chairman Jerome Powell, Rep. Patrick McHenry, Rep. French Hill and Rep. Bill Huizenga, they criticized the Fed for issuing supervisory letters, expressing concern about such actions May prevent financial institutions from participating in the digital asset ecosystem.
Republican Leader Accuses Fed of Undermining Stablecoin Regulatory Progress
The House Financial Services Committee has previously proposed a comprehensive regulatory framework for stablecoins in the United States. However, the bill’s prospects for becoming law have been called into question after talks between congressional Democrats, Republicans and the White House broke down last week.
Lawmakers emphasized their understanding of the need for regulatory certainty in the payment stablecoin space and the broader digital asset ecosystem to protect consumers and provide confidence to market participants.
They emphasized that this endorsement stems from the Payments Stablecoin Clarity Act, which has strong bipartisan support from the House Financial Services Committee.
Despite the committee’s proactive approach, the oversight and regulatory letters issued by the Fed, known as SR 23-7 and SR 23-8, have raised concerns among Republican lawmakers.
According to the letter, SR 23-7 and SR 23-8 appear to contradict the committee’s efforts to effectively prevent banks within the Fed’s purview from issuing payment stablecoins or participating in the payment stablecoin ecosystem.
Controversial Fed actions exposed?
While the Fed’s regulatory no-objection process was proposed as guidelines outlining permissible activities, lawmakers believe the Fed intends to prohibit any such activity, particularly related to public, permissionless blockchains. The letter includes:
The Fed chose to effectively prevent banks from issuing payment stablecoins or participating in the payment stablecoin ecosystem. While the supervisory no-objection process is masquerading as guidance outlining the process to allow such activity, it is clear that the Fed does not intend to allow any such activity, at least as it involves public, permissionless blockchains.
Additionally, legislators expressed reservations about the new type of activity regulation scheme established under SR 23-7, which they believe imposes an additional regulatory burden on banking institutions seeking to engage with cryptoassets.
Combined with previous policy statements and decisions, they assert, this approach could eventually lead to a de facto ban on banks interacting with the digital asset ecosystem.
The letter also noted that SR 23-7 and SR 23-8 were not issued in accordance with the notice and comment process required by the Administrative Procedure Act. Lawmakers believe it is unacceptable for the Fed to issue such guidance without being accountable to market participants and the public.
The concerns raised by key members of these Republican committees underscore growing tension between Congress and the Federal Reserve over the regulation of stablecoins and the broader digital asset industry.
It remains to be seen how the Fed will respond to these objections from Republican lawmakers, and whether there will be further dialogue and potential revisions to regulatory letters.
As the debate continues, stakeholders in the digital asset industry will be watching developments closely as the regulatory environment for stablecoins remains up in the air.
Featured image from iStock, chart from TradingView.com
