From American Banker, September 24:
- What's at stake: Stablecoin failure could echo throughout the banking system.
- Forward look: The Senate will debate market structure legislation next month.
- Expert quote: "No one wants to hear about this" – Senate Banking Committee ranking member Elizabeth Warren, D-Mass.
WASHINGTON — As Congress prepares to debate sweeping market structure legislation this fall, one glaring question remains unaddressed: what happens when a major stablecoin collapses?
Lawmakers spent months crafting the GENIUS Act, which President Donald Trump signed into law in July, creating the first legislative framework for stablecoins. That legislation passed despite objections from Democratic lawmakers and banks alike, and Republicans pushing the bills say those concerns will be addressed in a forthcoming market structure package that the Senate is planning to take up next month.
But the biggest of those concerns is what would happen to the financial system if a stablecoin issuer — or a bank holding significant stablecoin deposits — were to fail. That question, so far, has barely registered in the debate.
"I actually have had some of this conversation with Republicans as well, and no one wants to hear it," Sen. Elizabeth Warren, D-Mass., ranking member of the Senate Banking Committee, told American Banker in July. "Nobody wants to hear this."
How it starts
The idea of a single company, or a small number of companies, going under and taking all or a significant part of the entire financial system with it are usually fringe cases.Bankruptcies are rare, and big financial companies going under are even rarer. That said, it does happen, most recently with the collapse of Silicon Valley Bank in 2023, which set off a broader crisis of market confidence among large regional banks.
A stablecoin issuer failing would be very different from a bank failure or large nonbank bankruptcy. Consumers, should the industry grow, may increasingly park their money in stablecoins just as they do with bank deposits, except the treatment of stablecoins is different from deposits should the entity holding them fail....
....MUCH MORE
