Monday, November 14, 2022
The determination comes at an awkward time. Regulators have been erecting roadblocks that have kept banks from offering stablecoins. And the cryptocurrency market has been rocked by the failure of the FTX exchange, one of its largest and most trusted players.
Stablecoins are commonly defined as cryptocurrencies whose value is pegged to a "stable" reserve asset, such as the U.S. dollar or gold. But they can take several distinct forms. The TCH white paper examines the feasibility of stablecoins in one particular form, digitized deposits. In this scenario, tokens, or digital representations of customer deposits, could be exchanged between different accounts and customers. The white paper likens the funds underlying these digital deposits to funds represented by stored value cards, or checks.
Unlike stablecoins issued by nonbanks, however, these bank-issued stablecoins would benefit from regulatory safeguards like deposit insurance, TCH explained.
Accepting deposits and acting as intermediaries for payment exchanges are quintessential banking activities, and established by state and federal laws. The Office of the Comptroller of the Currency clarified this position in opinion letters it issued in 2020 and 2021. The OCC is part of the U.S. Treasury Department and regulates many of the nation's largest banks, like JPMorgan Chase and Bank of America.
Despite the OCC establishing legal authority for national banks to issue stablecoins, banks' plans to issue customer-facing stablecoins (sometimes referred to as tokens) are being throttled by regulators effectively deeming them to be too risky a business for banks.
Not so, argues TCH, a consortium of the nation's largest bank that operates payment networks like RTP. In fact, it could prove quite the opposite.
"This effective preclusion of the offering of stablecoins by the most regulated and experienced financial institutions in the world deprives American consumers and businesses who wish to use this new payment mechanism of the option to do so in reliance on the protections afforded by such a robust regulatory framework," TCH wrote. "Given the clear legal authority of banks to issue stablecoins and engage in related activities, and the fact that banks are well equipped to handle corresponding challenges, regulators should not impose an effective ban on these activities."
While as the name implies stablecoins are considered a "stable" digital asset, they are not immune from the volatility common to cryptocurrencies.
Significant market volatility brought on by the collapse of the FTX exchange jolted stablecoins, too, leading to the temporary "depegging" of some. Tether, a popular stablecoin pegged to the U.S. dollar, temporarily fell to $0.97 on Nov. 10, the day before the FTX filed for bankruptcy. At its peak, FTX was valued at $32 billion.
The FTX collapse has been likened to the collapse of Lehman Brothers, which is often credited for triggering the financial crisis of 2008, as well as to the failure of Enron in 2001, which led to additional large corporate failures in energy and related sectors.
Senator Patrick Toomey, R-Pa., ranking Republican on the Senate Banking Committee, was one of at least a dozen lawmakers who took to Twitter in the wake of FTX's collapse to rail against the lack of cryptocurrency regulations.
"The crypto sector has been operating with far too much ambiguity because (a) regulators refuse to give well-meaning actors clear guidance and (b) lawmakers refuse to act," he tweeted. 
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