WASHINGTON —One organization is warning NCUA is making the same mistake as other regulators when it comes to establishing rules around stablecoins.
Better Markets is urging the agency to strengthen its proposed regulatory framework for stablecoins, arguing the agency’s plan lacks sufficient safeguards and could expose credit unions, their members and the broader financial system to unnecessary risk.
In a comment letter submitted in response to the NCUA’s proposed rule implementing portions of the GENIUS Act, Better Markets said the proposal mirrors shortcomings it previously identified in stablecoin proposals issued by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Treasury Department.
‘Repeats the Same Mistakes’
“The NCUA’s GENIUS Act stablecoin proposal repeats the same mistakes” found in other agencies’ proposals, Christopher Appel, Better Markets’ director of banking policy, said in a statement accompanying the letter.
According to Better Markets, the proposal lacks meaningful capital and liquidity requirements, does not adequately diversify reserve assets backing stablecoins and fails to sufficiently address potential financial stability risks.
The organization also raised concerns over provisions that would allow multiple credit unions to jointly own a single permitted payment stablecoin issuer and permit that issuer to hold reserves at affiliated credit unions. Better Markets argued the arrangement could create interconnected risks by allowing financial stress at one institution to spread to another.
The group pointed to the March 2023 collapse of Silicon Valley Bank, noting that the USDC stablecoin temporarily lost its dollar peg after it was disclosed that approximately $3.3 billion of its reserves were held at the failed bank.
Questions Raised
Better Markets also questioned whether the NCUA has sufficient supervisory capacity to oversee stablecoin activities, citing recent workforce reductions, budget cuts and the agency’s current operation under a single board member.
“If the NCUA finalizes this rule as proposed, the costs of a stablecoin failure could extend far beyond crypto speculators to the savings of everyday credit union members, the National Credit Union Share Insurance Fund that protects them, and ultimately taxpayers,” Appel said.
As the CU Daily has reported, NCUA’s proposal would establish a regulatory framework governing federally insured credit unions that participate in the emerging payment stablecoin market under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. Better Markets said it supports stronger safeguards before the rule is finalized.
