US Banking Regulator FDIC Is Looking into Stablecoins’ Eligibility for its Deposit Insurance

The Federal Deposit Insurance Corp. (FDIC) is studying whether certain stablecoins might be eligible for its coverage. The discussions are only in the preliminary stage yet, reported CoinDesk citing five people familiar with the knowledge.

Reportedly, the agency is analyzing what pass-through FDIC insurance looks like for the reserves stablecoin issuers hold at banks. Such coverage makes the holder of the tokens eligible to be insured by the FDIC up to the standard deposit insurance amount of $250,000.

The agency is further looking into what direct deposit insurance would look like for banks that want to issue stablecoins.

“This is all part of a process by which they are trying to bring stablecoins into the banking system in a responsible manner,” one insider has been quoted as saying. “It depends on what’s backing the stablecoins.”

The insider added that if stablecoins are backed by reserves at the Federal Reserve for cash, then that would be a deposit but not if it’s backed by the Treasury.

Last week came the report that the Biden administration is looking to regulate stablecoin issuers as banks and is prepared to issue a report on them by the end of the month.

As we reported, the BIS also put out a proposal for public consultation this week, which aims to apply the same principles as those followed by the financial market to “systemically important” stablecoins.

Another report on CBDC from BIS earlier this month said significant stablecoin adoption could lead to “excessive market power” and fragmentation in the payments ecosystem.

In an interview with Forbes, former Securities and Exchange Commission (SEC) Chairman Jay Clayton shared his views on whether stablecoins should be considered securities. This is what he has to say:

“A stablecoin that promises $1 back to you, in exchange for the coin, and is backed by cash is one item. Such a coin that is backed by commercial paper, whether it’s 30, 60, or 90 days, sure looks like a money market mutual fund to me. So the second element really looks like a security. We have decided that a pooled vehicle of commercial paper that you use for daily liquidity is a money market mutual fund and should be regulated as such.”

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