Thank you, Secretary Yellen.
I’m pleased that the Financial Stability Oversight Council (FSOC) is publishing today’s report on the risks posed by the crypto-asset ecosystem.
The United States is making greater strides to transition to expanded availability of real-time payments. A resilient and competitive payments ecosystem offers significant benefits to consumers, workers, and businesses. Both the private sector and the public sector are offering new ways to transfer money.
The report highlights a critical part of the crypto-asset ecosystem: stablecoins. Stablecoins are overwhelmingly used in speculative crypto-asset trading. Currently, stablecoins are not ready for consumer payments. However, as many of us studied Facebook’s so-called Libra project, it is clear that stablecoins might quickly scale if powered by a Big Tech platform or other network with significant market penetration. This would have significant implications for both the financial system and the public.
As the report notes, the crypto ecosystem’s leverage, opacity, liquidity transformation, and associated risks could disrupt the broader financial system and create problems for our economy, if it becomes more interconnected with traditional financial services companies.
Stablecoin arrangements pose more imminent financial stability concerns than other parts of the crypto asset ecosystem, especially as banks, Big Tech companies, and P2P providers explore launching their own stablecoins. The industry estimates the top five stablecoins alone constitute over $140 billion and it was mere months ago when the third largest stablecoin at the time crashed—destroying nearly $20 billion in market capitalization in less than one week.
Many of our agencies have already taken steps to address discrete issues related to deposit insurance misrepresentation and to lay groundwork to address concerns related to fraud, hacks, and scams. Of course, we must also look to tackle broader risks to the financial system.
Last November, the President’s Working Group on Financial Markets recommended that the FSOC consider using its existing authorities to enhance the regulation of stablecoins, if Congress fails to pass comprehensive legislation. In particular, the FSOC could designate activities conducted within stablecoin arrangements as, or as likely to become, systemically important payment, clearing, and settlement activities under Title VIII of the Dodd-Frank Act. Such a designation would give federal regulators greater visibility into the stablecoin ecosystem and allow for the application of heightened safeguards, where appropriate. In today’s report, we are reaffirming our willingness to consider actions under existing law.