Several major banking groups in the United States are calling on Congress to take action to close a regulatory loophole that allows stablecoin issuers to offer yields through affiliate firms. This move comes as these banking groups express concerns that such practices could potentially undermine the stability of the banking system.

Stablecoins are a type of cryptocurrency that is pegged to a stable asset, such as the US dollar, to minimize price volatility. They have gained popularity in recent years as a way to facilitate faster and cheaper cross-border transactions, as well as to provide a more stable store of value compared to other cryptocurrencies like Bitcoin.

However, the recent trend of stablecoin issuers offering yields on these assets through affiliated companies has raised red flags among banking industry leaders. These yields are often marketed as a way for investors to earn passive income on their stablecoin holdings, similar to interest rates offered on traditional bank accounts.

The concern among banking groups is that these stablecoin yields could potentially pose a risk to the broader financial system. Unlike traditional banks, stablecoin issuers are not subject to the same regulatory oversight and capital requirements, which could leave them vulnerable to liquidity issues or insolvency. If a stablecoin issuer were to face financial difficulties, it could have ripple effects throughout the financial system, similar to the impact of a bank failure.

By offering yields through affiliate firms, stablecoin issuers may be able to circumvent some of the regulatory constraints that traditional banks face. This could create an unlevel playing field in the financial industry, giving stablecoin issuers an unfair advantage over banks when it comes to attracting deposits and offering financial products.

The banking groups are urging Congress to close this loophole and subject stablecoin issuers to the same regulatory standards as traditional banks. This would help level the playing field and ensure that stablecoin issuers are held to the same standards of transparency, risk management, and consumer protection as banks.

In response to these concerns, lawmakers are considering potential legislative measures to address the issue. This could include requiring stablecoin issuers to obtain banking charters or subjecting them to stricter regulatory oversight from agencies like the Federal Reserve or the Securities and Exchange Commission.

As the use of stablecoins continues to grow in the financial industry, it is crucial for regulators to ensure that these assets are held to the same standards as traditional financial institutions. Closing the regulatory loophole that allows stablecoin issuers to offer yields through affiliate firms is a necessary step to safeguard the stability of the banking system and protect consumers and investors.

Source: https://cointelegraph.com/news/us-bankers-want-stablecoin-yield-loophole-closed?utm_source=rss_feed&utm_medium=rss&utm_campaign=rss_partner_inbound