Document Type
Article
Publication Date
2024
Status
Working
Abstract
On April 17, 2024, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced a bill entitled “The Lummis-Gillibrand Payment Stablecoin Act.” The bill’s declared purpose is to create “a clear regulatory framework for payment stablecoins that will protect consumers, enable innovation and promote U.S. dollar dominance while preserving the dual banking system.”
Contrary to its stated purpose, the Lummis-Gillibrand bill would establish a weak and deeply flawed regulatory regime for stablecoins, thereby exposing consumers, investors, and our financial markets to grave dangers. The bill would allow stablecoins, which are volatile, deposit- like instruments, to be offered to the public without the strong protections provided by federal deposit insurance and other regulatory safeguards for federally-insured banks. By placing the federal government’s imprimatur on poorly-regulated stablecoins, the Lummis-Gillibrand bill would greatly increase the likelihood that future runs on stablecoins could trigger systemic crises with devastating effects on our financial system, economy, and society.
Congress should reject the Lummis-Gillibrand bill and should instead adopt legislation mandating that all issuers and distributors of stablecoins must be banks insured by the Federal Deposit Insurance Corporation (FDIC). That mandate would ensure that stablecoins are offered to the public in a safe and well-regulated manner that does not threaten consumers, investors, or our financial system. The Lummis-Gillibrand bill should be discarded because it does not contain that essential mandate.
The Lummis-Gillibrand bill has many other serious defects that warrant its rejection. As shown in this Policy Brief, those shortcomings include excessively lenient chartering criteria and dangerously weak capital standards for stablecoin issuers, woefully inadequate supervisory powers over stablecoin issuers and entities controlling those issuers, nonexistent stabilizing measures (like federal deposit insurance) to reduce the risks of contagion from failures of stablecoin issuers, misguided opportunities for stablecoin issuers to engage in risky derivatives activities, and a disturbing lack of regulatory controls over stablecoin transactions occurring on crypto exchanges and other crypto trading venues. In view of those manifold and glaring deficiencies, Congress should reject the Lummis-Gillibrand bill and should instead pass legislation requiring all stablecoin providers to be FDIC-insured banks.
GW Paper Series
2024-29
SSRN Link
https://ssrn.com/abstract=4819748
Recommended Citation
Wilmarth, Arthur E. Jr., "Policy Brief: Congress Should Reject the Lummis-Gillibrand Stablecoin Bill Because It Would Endanger Consumers, Investors, and Our Financial System" (2024). GW Law Faculty Publications & Other Works. 1734.
https://scholarship.law.gwu.edu/faculty_publications/1734