#Senate Stablecoin Bill

Karen Petrou: Stablecoin Banks and the Increasingly-Uncertain Future of Banking

Shane Smith2025-07-07T09:18:34-04:00July 7th, 2025|The Vault|

The CEO of a high-flying conglomerate named Textron once quipped that his investment bank’s c-suite had a long wall of his deal-done plaques and another facing wall just as replete with his deal-undone announcements. The investment bank made money on the way up and down, as did he. The big losers: investors. Is this a lesson for our times as stablecoin issuers line up for bank charters? Banks hope so, but I fear not.

The difference between Textron then and all the nonbanks gunning now for bank charters is that, in the way-back, Textron competed on the proverbial level playing field. The reason most of its acquisitions went bust is because the economies of scale and scope Textron touted were mostly chimeras since technology and data then did not reward consolidation. Now they do.

Even more importantly, the firms Textron bought were also under the same rules – such as they were – as their competitors. Now, of course, this isn’t anywhere close to the case for bank competitors such as auto manufacturers, tech-platform companies, payment entities, and nonbank stablecoin issuers.

We have written before about how regulatory and merger-policy obstacles make it hard for all but the biggest banks to innovate as well as of the inequities of the pending legislation’s stablecoin regime. We’re not the only ones who know this. Nonbank issuers are already looking for additional avenues of regulatory arbitrage and they don’t have to look far.

Last week’s news brought announcements of national-bank applications from Circle…

Karen Petrou: Why Stablecoin Hegemony Could Cost Too Much

Shane Smith2025-05-12T09:49:18-04:00May 12th, 2025|The Vault|

In the battle over stablecoin regulation, defenders of the pending legislation make much of the need for the U.S. to become the dominant global leader. That’s fine, but what if the new stablecoin framework gives the U.S. crypto preeminence at the cost of U.S. bank resilience and macroeconomic growth? That would be a high price to pay, but it’s nonetheless the Faustian bargain lurking in the latest legislation.

As our analyses have made clear, the House and Senate bills address only payment stablecoins – i.e., digital assets used by consumers and companies to settle financial accounts or to purchase goods and services. The idea is to make regulated stablecoins as reliable a medium of exchange as dollars, with the bills’ reserve-asset requirements meant to ensure that one stablecoin dollar always equals one U.S. dollar. This is fine as far as it goes, but that’s not far enough to ensure payment-system finality, ubiquity, and equality. A more robust stablecoin also does little but make it still more likely that regulated banks will be disintermediated as deposits move from the current, fractional system into a new, “narrow bank” model that does little for anyone but stablecoin issuers, their affiliates, and parent companies such as giant tech platforms.

A dollar’s worth of stablecoins is little more than an abstraction until one knows how it moves across the payment system. If the payment rails are weak or the engineer is negligent, then armored boxcars just make an even bigger, harder bang when they derail.…