Senate Passes GENIUS Act for Stablecoin Regulation Amid Criticism

The Senate has passed the GENIUS Act, which aims to establish a regulatory framework for stablecoins. Concurrently, the House is progressing with a similar bill, the STABLE Act. President Trump has expressed a desire to sign a stablecoin bill into law this year, indicating a significant step towards a much-needed regulatory regime for stablecoins.

However, the proposed legislation faces criticism for potential redundancy and inefficiencies. The bills suggest that stablecoin issuers could choose from 55 different regulators, including federal agencies and state regulators. This fragmented approach could lead to a race to the bottom, where issuers opt for the least stringent oversight, increasing the risk of regulatory gaps.

James J. Angel, a finance professor at Georgetown University, has highlighted the flaws in the proposed legislation. He argues that the involvement of multiple regulators could result in turf battles and delays, similar to the issues that contributed to the 2008 financial crisis. The current regulatory framework, with its numerous agencies, has already proven ineffective in addressing systemic risks and promoting innovation.

Angel suggests that Congress should designate the Federal Reserve as the sole regulator for stablecoins. This would streamline oversight and address systemic risks more effectively. He also proposes that interest-bearing stablecoins should be included in the regulatory framework to avoid regulatory loopholes and ensure comprehensive oversight.

The proposed bills require the Secretary of the Treasury to certify that state regulations are "substantially similar" to federal regulations, adding another layer of bureaucracy. Additionally, the House bill mandates joint rulemaking by the OCC, FDIC, and Fed in consultation with state regulators, a process known for its slowness and contentiousness.

Angel emphasizes the need for a clear regulatory objective for stablecoins, which should focus on protecting the economy, customers, and market participants. Stablecoins play a crucial role in the global payment system and are likely to become systemically important. Their failure could transmit distress throughout the economy, making it essential for the Federal Reserve to monitor and manage these risks.

Congress has the opportunity to fix the flaws in the STABLE GENIUS bills by designating the Fed as the single regulator for stablecoins and including interest-bearing stablecoins in the regulatory framework. These changes can be implemented promptly to address the current inefficiencies and ensure a more effective regulatory regime for stablecoins.

Moreover, Congress should begin discussions on reforming the broader regulatory structure to promote innovation and ensure American leadership in financial technology. The current regulatory framework, with its numerous agencies and turf battles, hampers innovation and needs urgent reform to keep pace with the evolving financial landscape.