The Federal Reserve’s new supervisory program will monitor banks’ crypto activity. Before issuing, possessing, or trading U.S. dollar stablecoins, banks must follow extra restrictions from the central bank.
On Tuesday, the Federal Reserve launched the Novel Activities Supervision Program to monitor novel financial institution activities. Fed stated:
“The program will focus on crypto-assets, DLT, and complicated, technology-driven partnerships with nonbanks to supply financial services to users.”
The central bank added that the program “will be risk-focused and complement existing supervisory processes.”
The Federal Reserve Board issued guidelines on Tuesday requiring institutions to meet certain conditions before issuing, possessing, or trading U.S. dollar stablecoins.
According to the Fed, “The Board provided additional information on the process for a state bank supervised by the Federal Reserve to follow before engaging in certain dollar token or stablecoin activity, including demonstrating to its Federal Reserve supervisors that it has appropriate safeguards to conduct the activity safely and soundly.”
Paypal announced a U.S. dollar stablecoin before the Fed announcement. “Paypal USD (PYUSD) is fully backed by U.S. dollar deposits, short-term U.S. treasuries and similar cash equivalents, and can be redeemed 1:1 for U.S. dollars,” the payments giant said.
Congress is proposing stablecoin legislation. Clarity for Payment Stablecoins passed the House Financial Services Committee. “Clear regulations and robust consumer protections are essential to enabling stablecoins to achieve their full potential,” said bill sponsor Congressman Patrick McHenry (R-NC). That’s why Congress must pass comprehensive digital asset regulation, especially for stablecoins.”