We Need to Fix the So-Called GENIUS Bill
The Senate’s passage of the GENIUS Act and the House’s consideration of the STABLE Act mark progress toward stablecoin regulation, but potential flaws necessitate immediate attention. While both bills aim to establish a regulatory framework, differences exist, requiring compromise. A key concern is the choice of 55 potential regulators, creating a risk of regulatory arbitrage (“race to the bottom”) and inefficiency. The requirement for the Treasury Secretary to certify “substantial similarity” between state and federal regulations adds unnecessary complexity and redundancy.
Further complicating matters is the mandated joint rulemaking process involving multiple federal agencies (OCC, FDIC, Fed), notorious for its slow pace and potential for conflict. This bureaucratic entanglement mirrors past failures, such as the Dodd-Frank Act’s FSOC, which has not effectively addressed regulatory fragmentation. The exclusion of interest-bearing stablecoins and “security” stablecoins from the proposed bills further highlights gaps in the regulatory approach. This creates ambiguity and the potential for jurisdictional disputes between agencies.
The current fragmented system, exemplified by the FTX case’s reliance on state money transmitter regulators, contributes to systemic risk. A single, unified regulator is crucial. The Federal Reserve, as the de facto systemic risk regulator, is the optimal choice. This streamlined approach would ensure consistent oversight and avoid costly duplication.
The overarching objectives of financial regulation – economic stability, customer protection, market transparency, and fraud prevention – should guide stablecoin regulation. Stablecoins’ growing systemic importance necessitates robust oversight to prevent cascading failures and market disruptions. A run on a large stablecoin could trigger widespread distress, impacting the Treasury market.
To address these issues, Congress must amend the STABLE GENIUS bills to designate the Fed as the sole regulator, include interest-bearing stablecoins, and eliminate redundant joint rulemaking requirements. Simultaneously, a broader review of the entire regulatory structure is warranted to promote innovation while maintaining safety and American leadership in financial technology. The current system’s inertia hinders progress and must be modernized to adapt to evolving financial technologies.
