Secretary of the Treasury Janet Yellen Provides Answers to Senator Toomey’s Questions including Stablecoin Clarification

The Secretary of the Treasury Janet Yellen has provided responses to questions put forth by Senator Pat Toomey – the ranking Republican on the Senate Banking Committee. The questions are in follow-up to a recent hearing at the Committee. Yellen, along with Fed Chairman Jerome Powell, will be testifying today once again in front of the Committee.

Secretary Yellen provides some insightful comments regarding her policy opinions, including on stablecoin regulation. Asked about bank oversight of stablecoins, Secretary Yellen has this to say:

“The President’s Working Group on Financial Markets (PWG), together with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, issued its report on stablecoins on November 1, 2021. The PWG report highlights gaps in the authority of federal regulators to address the risks of payment stablecoins and recommends that Congress act promptly to enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal framework on a consistent and comprehensive basis. The PWG report specifically recommends that to address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level.”

Does Treasury believe the Financial Stability Oversight Council (FSOC) has the authority to designate all stablecoin providers as financial market utilities or payment, clearing, or settlement activities?

“To address prudential risks associated with the use of stablecoins as a means of payment, the PWG Report on Stablecoins recommends that Congress act promptly to ensure that payment stablecoins are subject to appropriate federal prudential oversight on a consistent and comprehensive basis. In the absence of Congressional action, the report recommends that the Council consider steps available to it to address the risks outlined in the report. As Treasury’s work on stablecoins progresses, it intends to evaluate how FSOC’s designation authority with respect to financial market utilities and payment, clearing, and settlement activities may potentially apply to stablecoin arrangements.”

Regarding FATF virtual asset service provider (VASPs) standards, Yellen says she agrees with updated guidance of the standards not to regulate as VASPs natural or legal persons that provide only ancillary services or hardware wallet manufacturers, providers of unhosted wallets, software developers, or miners.

Senator Toomey references a report from Treasury issued during the prior administration that admonished the states for not providing “meaningful harmonization” of supervisory regimes. This is, in effect, a hidden tax on citizens as financial services firms must comply with federal rules as well as regulations in any state where they operate. Yellen claims that this report was “revoked” by the White House while adding that the Conference for State Bank Supervisors has made progress in regards to harmonization.

The document is available below.

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