US senators propose bipartisan stablecoin bill opening door to FDIC insurance in US

US senators Cynthia Lummis and Kirsten Gillibrand have jointly unveiled bipartisan legislation aimed at creating a clear regulatory framework for payment stablecoins, according to an April 17 statement.

Dubbed the Lummis-Gillibrand Payments Stablecoin Act, the proposed law wants to “protect consumers, enable innovation, and promote US dollar dominance while preserving the dual banking system.”

Speaking on the bill, Senator Lummis said:

“[The bill] preserves our dual banking system and install guardrails that protect consumers and prevent illicit finance while ensuring we don’t derail innovation.”

Stablecoins like Tether’s USDT and Circle’s USDC are some of the most popular digital assets in the crypto market. These assets are increasingly used for payment, and US Treasury Deputy Secretary Adewale Adeyemo recently claimed that Russia was utilizing them, particularly USDT, to bypass economic sanctions.

The bill details

The bill, which represents a more targeted approach than previous initiatives, zeroes in on the operational framework for stablecoins within the United States. Key provisions encompass stringent reserve requirements for issuers and operational guidelines.

Under the proposed legislation, issuers must either be non-depository trust institutions registered with the Federal Reserve Board of Governors or depository institutions authorized for stablecoin issuance. Financial institutions seeking to enter the stablecoin arena must establish dedicated subsidiaries for this purpose.

Furthermore, registered issuers are mandated to maintain full dollar backing for their stablecoins, effectively ruling out the use of algorithmic stablecoins. The bill also imposes a cap on the issuance of stablecoins by non-depository trust companies, limiting it to $10 billion. Beyond this threshold, institutions must secure authorization as national payment stablecoin issuers.

Moreover, to instill confidence in customers regarding the security of their funds, the bill establishes a “receivership regime” with the Federal Deposit Insurance Corporation (FDIC). This regime delineates the order of priority, claims validity, and payment stablecoins’ classification as customer assets rather than belonging to the issuer.

Senator Gillibrand noted that these provisions “protect consumers by mandating one-to-one reserves, prohibiting algorithmic stablecoins, and requiring stablecoin issuers to comply with US anti-money laundering and sanctions rules.”

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