US Lawmakers Push for Urgent Stablecoin Regulation — Fed Warns of Stablecoin Runs, Janet Yellen Cites UST Fiasco – Regulation Bitcoin News

As U.S. lawmakers push for the urgent regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve Board warn about the risks of stablecoin runs that threaten the country’s financial stability. Janet Yellen from Treasury spoke out about the terrausd (UST), fiasco, as an example why a complete regulatory framework was urgently necessary.

Janet Yellen (Treasury Secretary) Testifies in front of the Senate Committee

Stablecoins has become a topic of interest in Washington. Following Monday’s terrausd (UST) fiasco, U.S. lawmakers are calling for the urgent regulation of stablecoins.

On Tuesday, U.S. Treasury Secretary Janet Yellen brought up UST as an example of a “stablecoin run” during her testimony before the Senate Committee on Banking, Housing, and Urban Affairs on the Financial Stability Oversight Council (FSOC) Annual Report.

Senator Pat Toomey, R-Pa., asked Yellen for her opinion on regulation of stablecoins. “I would like to ask if you can confirm for the record here that it is still your view that it is important, I would argue even urgent, for Congress to pass legislation governing the regulations of the payment stablecoins,” he said.

Yellen replied:

Yes, I’m happy to confirm that, Senator Toomey.

She continued: “The president’s working group issued a report concluding that the current statutory and regulatory frameworks don’t provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment products, and urges Congress to enact legislation to ensure that stablecoins and such arrangements have a federal prudential framework.”

The treasury secretary elaborated: “I would urge a bipartisan action to create such a framework. We would look forward to working with you.” She added:

According to the Wall Street Journal, there was an article this morning claiming that terrausd is a stablecoin. [UST]The stock experienced a run, and its value had fallen.

“I think that simply illustrates that this is a rapidly growing product and there are risks to financial stability and we need a framework that’s appropriate,” Yellen stressed.

Toomey quickly responded: “It’s important to note that the stablecoin to which you refer, I believe, is an algorithmic stablecoin. So that means by definition it is not backed by cash or securities as the — if you can call them — ‘more conventional stablecoins.’”

The U.S. dollar lost parity and the stablecoin terrausd dropped to $0.66 an unit Monday.

Financial Stability Oversight Council Annual Report Warning About Stablecoin Runs

The FSOC Annual Report also stated that stablecoins might be susceptible to run risk. Noting that “the potential for the increased use of stablecoins as a means of payment raises a range of prudential concerns,” the report states:

If stablecoin issuers do not honor a request to redeem a stablecoin, or if users lose confidence in a stablecoin issuer’s ability to honor such a request, runs on the arrangement could occur that may result in harm to users and the broader financial system.

Federal Reserve Board’s Report on Financial Stability Says Stablecoins Are Prone to Runs

The FSOC’s view on stablecoins is shared by the Federal Reserve. Monday was a similar day for the Federal Reserve System’s Semi-Annual Financial Stability Report.

Among the risks discussed in the report is “funding risks,” which “expose the financial system to the possibility that investors will ‘run’ by withdrawing their funds from a particular institution or sector,” the report details, elaborating:

There are still some money market funds and stablecoins that can be prone to run.

In addition, “The stablecoin sector continued to grow rapidly and remains exposed to liquidity risks,” the report notes.

What do you think about Treasury Secretary Yellen’s comments and the warnings by the Federal Reserve and the Financial Stability Oversight Council on stablecoins? Comment below to let us know your thoughts.

Kevin Helms

Kevin, a student of Austrian Economics and evangelist since 2011, discovered Bitcoin. His main interests are in Bitcoin security, open source systems, network effects, cryptography, and intersections between economics, cryptography, and Cryptography.