Federal Reserve Governor Bowman: Formulating stablecoin regulation rules to balance competition between banks and cryptocurrency companies.

The highest banking regulatory official at the Federal Reserve plans to inform members of the House on Tuesday that she will work to establish new regulations for banks and stablecoins to ensure healthy competition between Wall Street, financial technology companies, and cryptocurrency firms. In her prepared remarks for a hearing before the House Financial Services Committee, Bauman said, "As regulators, it is our responsibility to encourage responsible innovation, while continuously enhancing our ability to regulate the safety and soundness risks posed by innovation." She added that new technologies have the potential to create a more efficient banking system, expanding access to credit while creating a level playing field for fintech companies and digital asset firms. Bauman also noted that, in accordance with the Guidance and Establishing National Innovation of Stablecoin Serving United States Act (GENIUS Act), she will work with other regulatory agencies to establish capital and diversification rules for stablecoin issuers. Under the GENIUS Act, stablecoin issuers are required to formally register and hold reserve assets in a 1:1 ratio to the US dollar. She emphasized that regulators will define standards for digital asset regulation and provide regulatory feedback for proposed new use cases. This statement comes at a time when banks and cryptocurrency firms are engaging in intense competition over the future of digital asset regulation, with a focus on banking licenses. For cryptocurrency firms, obtaining a banking license can bring multiple benefits, including significantly increasing industry legitimacy. However, traditional lending institutions warn that this could lead to an imbalance in the competitive environment or hollowing out of the licensing system - where some companies may enjoy the legal status of a banking license without fully assuming all the responsibilities historically required of banks. Bank Capital Regulation Updates Bauman's testimony also emphasized her efforts to implement several bank capital regulatory measures, including the highly anticipated final version of the Basel III agreement. "My regulatory approach is to calibrate the new framework from the bottom up rather than modifying rules through reverse deduction, predetermined, or preconceived ways to determine capital requirements," Bauman said. There have been reports that the Federal Reserve has shown other US regulatory agencies the revised framework for the Basel III agreement, which is expected to significantly relax capital regulations for large Wall Street lending institutions during the Biden administration. Bauman also revealed that the Federal Reserve is working on improving the additional capital rules for large banks in conjunction with the overall capital framework reform process.