On April 17, 2024, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced a bill entitled the Lummis-Gillibrand Payment Stablecoin Act. The bill is the latest bipartisan effort by the two senators to provide a comprehensive federal oversight regime for the regulation of stablecoins.
The bill applies to “payment stablecoins,” which are defined to include a crypto asset (A) that is, or is designed to be, used as a means of payment or settlement; (B) the issuer of which (i) is obligated to convert, redeem or repurchase for a fixed amount of United States dollars or (ii) represents, or creates the reasonable expectation, that the crypto asset will maintain a stable value relative to the value of a fixed amount of United States dollars; and (C) that is not (i) United States coins, a Federal Reserve note or other lawful money, money issued by a central bank or money issued by an intergovernmental organization pursuant to an agreement by one or more governments or (ii) a security issued by an investment company registered under the Investment Company Act of 1940. The bill bans the issuance of so-called algorithmic stablecoins, which are stablecoins that rely on the use of an algorithm that adjusts the supply of the crypto asset in response to changes in market demand for the crypto asset to maintain the expectation that the crypto asset will maintain a stable value.
Under the bill, state non-depository trust companies may issue up to $10 billion in payment stablecoins, whereas state or federally chartered deposit institutions may do so without limit, subject to the condition that existing institutions charter a separate banking entity to act as the payment stablecoin issuer. The bill includes provisions regulating payment stablecoin issuers similar to banks, including provisions regarding topics such as customer protection, reserve requirements, examination and supervision of payment stablecoin issuers, subjecting them to, among other things, the Bank Secrecy Act and Gramm-Leach-Bliley Act privacy protections. The bill also devotes over 100 pages to creating an FDIC-supervised conservator or receiver process for insolvent payment stablecoin issuers. It further requires crypto assets held in a custodial account to be accounted for off-balance sheet, which is potentially at odds with the SEC views on the issue. The bill also preserves the existing authority of various regulators to oversee the crypto industry, setting up other potential conflicts as well.
With the time for Congress to take action on legislation rapidly decreasing before it adjourns over the summer to begin campaigning for the November elections, it remains to be seen how far the bill will advance this year. The bill also requires rulemaking to implement key provisions and provides for lengthy transition periods upon enactment.