Acting comptroller repeats call for regulated financial institutions to issue stablecoins; seeks regulatory collaboration, cooperation

The lack of standards and controls in the cryptocurrency space suggest that a cautious and careful approach is warranted to cryptocurrencies, the top regulator of national banks said Thursday.

In a speech to the BritishAmerican Business Transatlantic Finance Forum, Acting Comptroller of the Currency Michael Hsu also indicated his past comments that banks and other financial institutions subject to bank regulation are best situated to ensure that confidence in such cryptocurrency vehicles like stablecoins would give holders of that media “confidence that those coins were as reliable and ‘money good’ as bank deposits.”

Referring to a quote from investor Warren Buffet (who reportedly said “It is only when the tide goes out do you discover who’s been swimming naked”), Hsu indicated that the tide would have little impact on regulated banks.

“Even if the tide were to go out, the reserves would be there, overseen and examined by bank supervisors, and potentially even backstopped by access to a central bank’s discount window to meet short term liquidity needs if warranted,” he said. “There would be no need for any holders to redeem or even to worry about redeeming a bank-regulated stablecoin. Bank regulation would give credibility to the ‘stable’ part of stablecoins.”

The acting leader of the Office of the Comptroller of the Currency (OCC) also asserted that regulating stablecoin issuers as banks would enable more innovation in crypto and make those innovations more durable. “While innovation thrives in uncertain environments, solid foundations can help, especially when it comes to money and trust,” he said.

Hsu drew comparisons to the history of the OCC, which was created during the Civil War era in the face of confusion caused by banks’ issuance of different types of currency, all claiming to be backed by dollars, and redeemable for gold.

“I don’t want to overstate the parallels between stablecoins and pre-Civil War bank notes,” he said. “But the broad lesson seems applicable: strong, targeted federal regulation of money and banking can help establish a solid foundation for the economy enabling healthy innovation and growth.”

Hsu said the growth and impact of cryptocurrency on the financial industry, and the consequences of any loss of trust by consumers and the broader economy in crypto, “are of increasing concern” to financial regulators.

“Collaboration and coordination among regulators are necessary to keep up and respond effectively,” he said.

“The need for collaboration and coordination is particularly important with regards to large crypto intermediaries, which are increasingly operating globally and across a wide range of activities,” Hsu said. “The largest crypto firms and platform operators today have tens of millions of users and handle hundreds of billions of dollars of transactions every month. Yet none is subject to comprehensive consolidated supervision where a single authority has a line of sight into the entirety of an intermediary’s activities.”

Acting Comptroller Michael J. Hsu Remarks before the BritishAmerican Business Transatlantic Finance Forum Executive Roundtable