#stablecoin

15 11, 2021

Karen Petrou: The Real Problem in the Omarova Hearing

Arezou Rafikian2023-06-01T13:46:35-04:00November 15th, 2021|The Vault|

Later this week, the Senate Banking Committee will hold Saule Omarova’s confirmation hearing for Comptroller of the Currency. Many expect this to be a knock-down, drag-out between the progressive bank-reform agenda and the banking industry’s antipathy thereto. This it surely will be, but to watch only these fireworks is to miss the longer-burning fire below: renewed questions about whether banks are public utilities or private companies with unique privileges fully reimbursed by virtue of unduly-burdensome regulation. It is by this choice — not Ms. Omarova’s most-uncertain confirmation — that the future of U.S. finance will be decided.

Although Ms. Omarova has surely moved on from the Marxist views of which she is accused based on an early academic paper, she clearly sides with those who think that banking is for public purpose, not private profit. Indeed, according to at least some of her work, banking can’t be trusted to banks and thus should be seconded to the federal government or outside experts presumed to be not just objective, but also disinterested in all but the public good.

This is not a new view. After the S&L crisis of the 1980s and the subsequent banking debacle in the early part of the next decade, much was made of the subsidy banks were said to enjoy from unique access to FDIC insurance and the Fed’s discount window. Bankers strongly disputed any subsidy, but I said then and believe now that banks then indeed enjoyed special-purpose charters that warranted not just tough safety-and-soundness …

2 11, 2021

FedFin Assessment: The Near-Term Stablecoin Regulatory Agenda

Arezou Rafikian2023-06-02T13:04:23-04:00November 2nd, 2021|The Vault|

As noted yesterday, the President’s Working Group on Financial Markets (PWG) was joined by the OCC and FDIC yesterday issuing a report calling for prompt Congressional action to regulate stablecoins and, even in its absence, also for fast action by federal regulators and the FSOC. In part because it poses the largest regulatory void, the most worrisome of the risks the report details arises from the role stablecoins may play in the payment system and resulting threats to systemic stability and competition. Issues germane to digital-asset trading (defined to include lending and related activities) are described but largely left to regulators; SEC Chairman Gensler has made it clear (see Client Report INVESTOR19) that he intends to act and the CFTC-chair nominee has done the same.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.

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20 10, 2021

FedFin on: Global CBDC Policy

Arezou Rafikian2023-06-07T15:35:08-04:00October 20th, 2021|The Vault|

Shortly after the BIS and a group of central banks endorsed a construct for retail-facing central-bank digital currency (CBDC), the Group of Seven (G7) finance ministerial issued these public-policy principles to establish a still broader framework for future action. No G7 nation, including the U.S., has decided on CBDC, but their governments have generally developed these documents to ready themselves, enhance the odds of CBDC better suited to cross-border clearing and settlement, anticipate private stablecoins and the risks they raise, as well as counter China’s efforts to build a CBDC that enhances its global macroeconomic might.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

18 10, 2021

Karen Petrou: How to Make Stablecoins More than Monopoly Money

Arezou Rafikian2023-06-07T15:59:53-04:00October 18th, 2021|The Vault|

In all of the reports on all of stablecoin’s risks that so frighten central bankers and global finance ministers, none is as terrifying as whether the assets backing hundreds of billions of dollar-equivalent transactions are to be had when needed. And needed they will be – see not just all the ministerials on high, but also Gillian Tett’s latest, compelling FT column. Without a meaningful reserve-currency reference, stablecoins are the equivalent of monopoly money without even the teeny little plastic hotels providing an illusion of wealth. Making stablecoins matter as real money requires meaningful reserves but meaningful reserves mean that stablecoin’s gung-ho promoters won’t get anywhere near as rich. The business model changes for the way-better, but the construct of stablecoins may be so altered as to make this looming systemic phenomenon only a passing fancy.

The set of difficult choices needed to realize stablecoin’s promise to anyone but profiteers is detailed in our latest report on critical policy issues. In it, we analyze a set of systemic-risk principles recently proposed by the BIS’s Committee on Payment and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). As is usually the case with global-regulatory pronouncements, this proposal defines wide parameters for jurisdiction action, stating most clearly what’s wanted, not what will happen if one were actually to get it.

The CPMI/IOSCO paper is even more hesitant than usual because reserve assets aren’t stablecoin’s only tricky bit. For example, the paper describes a governance conundrum of formidable proportions …

14 10, 2021

FedFin on: Global Systemic-Risk Standards for Stablecoin Arrangements

Arezou Rafikian2023-06-15T14:58:37-04:00October 14th, 2021|The Vault|

Responding to requests from the G7, G20, and FSB, this report addresses market-infrastructure considerations related to systemically-important stablecoins that do not involve multi-currency baskets (e.g., Facebook’s Diem). The report builds on the FSB’s current principles and those on cross-border payments, but generally does not propose specific standards. Instead, it lays out how current global principles in this area should guide both stablecoin developers and regulators.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…