Draft House bill not to limit banks' authority to issue tokenized deposits

The latest version of the stablecoin legislation would not limit banks' authority in issuing digital assets that represent deposits, as permitted by applicable state and federal law, according to a copy of the draft of the bill.

It would neither limit the authority of federal banking agencies to interpret or establish limitations and conditions on such activities.

The acknowledgment indicates that the lawmakers would create a path for banks to engage in the core business of banking — taking deposits and making loans — leveraging blockchain, said Rob Morgan, CEO of the USDF Consortium. Members of the consortium include nine banks that want to issue digital assets referencing fiat currency on blockchain, also known as tokenized deposits.

"We think banks need to be able to play the same credit creation role on chain as they do in every other market and on every other technology," Morgan said in an interview.

The primary focus of the draft bill is on payment stablecoins. While the draft bill aims to fill in the blank of supervision on payment stablecoins, bank-minted tokenized deposits would be subject to the same rules, oversight and supervision that traditional bank deposits are, Morgan said.

Held by the same standards, banks and nonbank entities would be required to file applications if they seek to issue payment stablecoins. Issuers would need to maintain a reserve to back the stablecoins on an at least one-to-one basis, by assets including U.S. coins and currency, Treasury bills, repurchase agreements backed by Treasury bills, or central bank reserve deposits, according to the draft.

The bill would give federal banking agencies the authority to regulate payment stablecoins, including the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the National Credit Union Administration.

Issuers would be asked to publish monthly composition of the reserve, and fulfill redemption requests within one day. Payment stablecoin would not be covered by deposit insurance provided by the FDIC and the NCUA.

House Financial Services Committee Chair Maxine Waters, D-Calif., and Ranking Member Patrick McHenry, R-N.C., have been working to reach an agreement on the stablecoin legislation, though it is unclear if McHenry has approved the latest draft, Bloomberg reported Sept. 20, citing anonymous sources.

McHenry said last week that stablecoin legislation could be finalized by year-end.

The majority of U.S. dollar-pegged stablecoins in circulation today are issued by nonbank entities such as Circle Internet Financial Ltd., Binance Holdings Ltd. and Paxos. Among banks, Silvergate Capital Corp. has planned to launch its stablecoin in later 2022 to drive deposits.