WASHINGTON, D.C.— February 17, 2022 The CFA Institute Systemic Risk Council (the SRC) today released a letter to Treasury Secretary Janet Yellen and members of the Financial Stability Oversight Council (FSOC) urging the group to act on growing risks to U.S. financial stability posed by unregulated stablecoins. The President’s Working Group along with other agencies recently released a report recommending that Congress address these risks by passing new legislation that would impose needed regulations on stablecoin issuers and the stablecoin market.[1]

“We agree with this report that a legislative response would help mitigate threats posed by unregulated stablecoins”, said SRC Co-Chair Simon Johnson. “We also worry there is a significant chance that Congress will not act in time,” he added. Given the uncertainties and delays involved in the legislative process, the SRC letter urges policymakers to simultaneously pursue the other routes.

The SRC letter recommends a two-pronged strategy that includes FSOC moving quickly to designate stablecoins as systemically important payment, clearing, and settlement activities and at the same asking each of the FSOC member agencies, including the banking regulators, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Consumer Financial Protection Bureau (CFPB), to use their existing authorities to regulate stablecoins. In particular, the SRC says regulators’ immediate concern should be to limit the use of fractional reserve stablecoins—i.e., electronic tokens that are not backed one-for-one with insured bank deposits or short-term U.S. government debt.  “This would be a key move to reduce the risk of runs, contagion, and further expansion of the shadow banking sector”, noted Johnson.

The SRC Co-Chair Erkki Liikanen noted the importance of international dialogue with foreign monetary and stability authorities regarding stablecoins. Many stablecoin operators are located overseas and are being used to facilitate value transfers internationally, which raises policy issues for global payments system design. “FSOC and its member agencies ought to work to harmonize standards for all stablecoin issuers worldwide and ensure that efforts by U.S. regulators to address risks posed by stablecoins domestically do not lead destabilizing activities to move offshore”, said Liikanen.

The full text of the SRC statement on stablecoins is available, click here.

For further information, contact Bristol Voss at bristol.voss@cfainstitute.org or 917.817.0888

[1] President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation & the Office of the Comptroller of the Currency, Report on Stablecoins (2021).

CFA Institute Systemic Risk Council was formed by CFA Institute and The Pew Charitable Trusts in June 2012 to monitor and encourage regulatory reform of U.S. capital markets focused on systemic risk. CFA Institute became the sole supporting organization in August 2015. The statements, documents and recommendations of the Council does not necessarily represent the views of the supporting organization.