Inside the White House talks between crypto firms and banks on stablecoin rewards

The White House recently convened a series of high-level, closed-door discussions involving prominent figures from the cryptocurrency industry, representatives of major commercial banks, and top financial regulators. The central focus of these talks was the legislative path forward for stablecoins, with specific emphasis placed on the regulatory status and permissibility of offering rewards or yield to stablecoin holders.

Administration officials stressed the urgent need for a clear legislative framework, driven by concerns over consumer protection and systemic financial stability. Crypto firms, including leading stablecoin issuers, argued that the ability to offer competitive yield is crucial for innovation and maintaining the global competitiveness of dollar-pegged digital assets. They often attribute these rewards to the efficient yield generated from holding U.S. Treasury bills and other highly liquid, safe assets that back the stablecoins.

Conversely, traditional banking sector representatives voiced concerns about regulatory parity. Banks contend that if non-bank entities are permitted to offer deposit-like rewards without being subjected to the strict capital reserves, deposit insurance requirements, and extensive Know Your Customer (KYC) regulations mandated for chartered institutions, it creates an untenable environment ripe for regulatory arbitrage and potential instability.

Regulators pressed industry participants to clarify reserve structures, generally advocating for legislation that mandates 100% liquid reserves held in segregated accounts. A key compromise discussed involved creating a specialized federal charter for stablecoin issuers who wish to offer yield products, thereby subjecting them to prudential supervision akin to traditional banks. This oversight would aim to mitigate risks associated with sudden redemptions and ensure the segregation of operating funds from reserve assets.

While the meetings did not result in immediate policy recommendations, they underscored the administration’s commitment to achieving a regulated stablecoin ecosystem. Future policy development is expected to prioritize enhanced oversight for any stablecoin product that functionally resembles an interest-bearing savings account, signaling a movement toward stricter integration of stablecoins within the existing financial safety net.

Source: Inside the White House talks between crypto firms and banks on stablecoin rewards