WASHINGTON — A group representing state legislatures is criticizing the Senate stablecoin bill championed by congressional Republicans, arguing that a provision added to the bill
The National Conference of State Legislatures urged leading lawmakers to oppose and strike Section 16(d) of
The section would preempt a state's authority to prohibit an uninsured depository institution from doing business in their state. States like Wyoming, Georgia and Connecticut have offered Special Purpose Depository Institution charters to banks with unique business models — most notably focusing on serving the cryptocurrency industry — and that do not offer Federal Deposit Insurance Corp. deposit insurance.
"Under the provision, an uninsured depository institution could engage in a wide range of financial activities — including custodial services, digital asset custody, fiduciary services, securities and commodities transactions and wholesale banking — without the consent of the host state's banking commissioner or approval by the state legislature," the group said in the letter.
Currently, states can approve those charters on a case-by-case basis. Section 16(d) would allow those special purpose banks to operate if they have "substantially similar" regulation and reserve requirements as insured banks.
The section does not stipulate that a special purpose depository institution maintain capital provisions on par with other traditional banks, the group said, potentially conferring a competitive advantage for those banks over banks already doing business in their states.
"Multiple states have reviewed and ultimately rejected authorizing uninsured depository institutions, reflecting a deliberate and thoughtful approach to local economic and consumer protection concerns," the group said. "This provision is disconnected from any federal regulatory framework, including the stablecoin standards in the broader bill and appears wholly unrelated to the bill's primary policy objectives."
The concerns raised by the National Conference of State Legislatures are similar to those surfaced by the Conference of State Bank Supervisors last month.
"While we support the overarching goal of establishing clarity and regulatory certainty for payment stablecoins, we believe the bill, as written, could inadvertently introduce significant risks to financial stability, undermine the critical role of state regulatory authorities, and fall short of providing adequate protection for consumers," the group said in
CSBS said that lawmakers should strike Section 16(d) completely.
"This preemption is not linked to adherence to any federal standard or regulatory regime and is unrelated to the core purpose of this bill — establishing a national stablecoin framework," the group said. "For authorized stablecoin issuers, this provision also is superfluous, as other sections of the legislation already permit interstate activities for such issuers. State authority to protect their residents by setting their own standards for financial service providers should not be overridden without a compelling federal interest, which has not been demonstrated with respect to this unrelated, unnecessary provision."
