The US Federal Reserve has issued new supervisory guidance for state banks that are members of the Federal Reserve system, outlining the process they should follow when engaging in transactions involving stablecoins, such as dollar-backed tokens used for payments. The central bank mandates that these state banks must obtain a written supervisory nonobjection from the Federal Reserve before issuing, holding, or conducting transactions with stablecoins.
Additionally, the Federal Reserve has announced the establishment of a fresh supervisory program. This initiative is designed to oversee the cryptocurrency-related activities of the banks under its supervision, encompassing blockchain technology and technology-driven partnerships with nonbank entities. The objective of this program is to complement the existing supervisory framework and enhance oversight of technology-driven endeavors.
These developments come shortly after PayPal, a prominent player in the payments industry, revealed its intention to launch its own stablecoin, a type of cryptocurrency that is typically pegged to traditional assets like the US dollar. Past efforts by major mainstream companies to introduce stablecoins have encountered substantial resistance from financial regulators and policymakers. For example, Meta’s (formerly Facebook) 2019 plan to launch the Libra stablecoin faced opposition due to concerns about potential disruptions to global financial stability.
To gain written nonobjection and engage in stablecoin-related activities, banks must demonstrate robust risk management practices, including the implementation of systems to identify and monitor potential risks, such as cybersecurity threats and illicit financial activities. Once granted, state member banks involved in activities related to dollar tokens will continue to be subject to supervisory evaluation and heightened monitoring by the Federal Reserve.
