March 20, 2025 • 19 mins
Legislators and regulators are strongly focused on policy related to payment stablecoins, most recently with the passage of the Genius Act in the Senate Banking Committee. On this episode of the ABA Banking Journal Podcast — presented by nCino — ABA’s Brooke Ybarra and Kirsten Sutton discuss the current policy and technology landscape on stablecoins. Among other topics, they talk about:
- How stablecoins work and why people are interested in this kind of digital asset.
- Use cases for payment stablecoins, such as cross-border payments.
- Challenges that stablecoins may pose for today’s anti-money laundering and Bank Secrecy Act framework.
- The outlook in Congress for the Stable Act in the House and the Genius Act in the Senate and what these bills would do.
- Key principles for thinking about stablecoins, including economic effects, disintermediation of financial institutions, regulatory arbitrage and consumer protection.
- How ABA is engaging on Capitol Hill and with regulatory agencies on stablecoin issues.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Brooke Ybarra (00:01):
first do no harm.
Be careful about the economic impactsand potential disintermediation
of the banking industry here.
You know, in some ways youcould think of every dollar.
U. S. Dollar that becomes
a payment stablecoin is in some
ways a dollar that's not in a deposit account at a bank.
(00:22):
And that has real implications.
Evan Sparks (00:26):
From the American Bankers Association, this is
the ABA Banking Journal podcast.
I'm Evan Sparks.
Today's episode is presented by nCino.
And I'm here with two of my ABAcolleagues, Brooke Ybarra, who is the
head of our Office of Innovation, andKirsten Sutton, who is the Executive
Vice President for CongressionalRelations in our Government Affairs team.
Two incredibly, talented colleagueswho know a lot more than I do about the
(00:48):
subject that we're going to discuss today,
which is stablecoins.
and the stablecoin policy environment
in Washington, D. C. right now.
So, I love it.
Brooke, again, you know waymore about this than I do.
For the purpose and benefitof our listeners, can you
just bring us up to speed?
What is a stablecoin?
And why
are, people in the financial sector interested in this?
(01:10):
particular kind of, of a digital asset.
Brooke Ybarra (01:13):
Yeah, absolutely.
Well, Evan, I'm so glad to bedoing this with you and Kirsten.
So
a payment stablecoin is a type
of cryptocurrency or digital asset that as its name implies
is intended to maintain a stable value.
So oftentimes it uses reserves that areheld in collateral, to maintain the value
(01:34):
of that.
stablecoin at what it's
attended intended.
And so
most often stablecoin is pegged
to the US dollar.
Many of our listeners will probablyhave heard of circle or tether.
These are stablecoins out there thatare in the market pegged to a dollar.
people can buy and sell and trade them,and there's been a real push to develop
(01:57):
a regulatory framework that will apply
to payment stablecoin issuers,
you know, something that will govern the type of reserves
that are eligible to be held to back
that payment stablecoin, or what
types of anti money laundering rules might apply, you know,
a whole host of things you could thinkof, that should be part of a framework
(02:19):
when we're talking about an instrumentset that looks a lot like a dollar.
Evan Sparks (02:24):
So it's like, I mean, so it's the, the opposite use case of a
Bitcoin or Ethereum or whatever, wherethe value fluctuates substantially.
And so people are treating it moreas a investable asset versus, versus,
something that you could use toactually transact on a regular.
Brooke Ybarra (02:42):
Yeah.
It really is.
That's exactly right.
So, you know, the price of Bitcoin,the price of truly thousands and tens
of thousands of other crypto tokensout there that are not asset backed,
you know, who there's a market forthem just based on what someone is
willing to buy or sell that token at,the price will fluctuate accordingly.
(03:04):
Stablecoin is precisely the opposite ofthat in many ways, where it's intended
to be what it It's said that it's, worthit kind of at all times and therefore may
have, applicability as a means of payment.
Evan Sparks (03:18):
So when we
think about a stablecoin, is it just
a new kind of payment rail or is it, is it something else in
terms of how it's structured and whyand what the advantage is for the, for
people who are using it to transact?
Brooke Ybarra (03:33):
So it's a great question.
And the answer is kind of a combo, Ithink of it depends and we'll see, right?
So I think most people even, you know
crypto and stablecoin enthusiasts
would agree The primary use
case for a stablecoin today is
basically to buy in to the crypto ecosystem.
(03:57):
It's much easier to trade inother cryptocurrencies kind
of once you're in the system.
And you get in the system, not usuallywith your US dollars to make that next
trade, but with a crypto token worth aUS dollar, like a circle or a tether.
so that's, that really is thepredominant use case today.
(04:18):
But, you know, there are visions,I think, and, and maybe real
opportunity for stablecoin todevelop as a, a payment rail.
I think there's, that vision holdsmore water, in my view, when we think
of potentially cross border payments.
You know, where there's a real desire by,people and entities outside of the United
(04:43):
States to hold a dollar denominated, And
for them, a stablecoin really could
have a lot of value if they don't have kind of direct assets, or
excuse me, direct access to US dollars.
Evan Sparks (04:56):
Yeah.
And so I mean, so I really want toget to the policy landscape around
this in just a minute here, butI'm just curious a little bit more
as we, drill down on this concept.
You talked about AML issues.
What are some of the challengesthat within our existing regulatory
landscape that affect theissuance and use of stablecoins?
Brooke Ybarra (05:16):
Well, I think so.
One, the technology is different.
I'll say it's it's not fair, Ithink, to call it new anymore.
Distributed ledger and blockchainhave been around for some
time, but it's different.
It's different than kind of rails andsystems that value transact on today.
there are also there's featuresof the blockchain and distributed
(05:38):
ledger that make it in some waysmore transparent and easier to
track value through transactions.
but that's not that transparency isn't, Iwouldn't say obvious to everyday people.
It's, it requires, experts in manycases to identify wallet addresses.
And there's a lot of technology thatcan, that can obfuscate, in many ways,
(06:02):
you know, how, where transactionsare going and, and that can make
the application of, BSA or antimoney laundering rules much harder.
So that's a, that is an area, That thatis requiring some focus, I think, and has
been, you know, a particular interest aswe look at different policy proposals.
Evan Sparks (06:23):
I know I want to take actually a quick moment here, and thank
our sponsor for this episode, nCino.
Today's financial institutionsstrive to achieve efficiency,
boost customer satisfaction,and adapt to changing markets.
nCino provides the tools to digitizeprocesses, consolidate systems, and
drive innovation with more than eight,with more than 1,800 institutions
already benefiting from our, fromtheir platform, and nCino is powering
(06:45):
a new era in financial services.
Learn how you can take the nextstep forward to to solving your
institution's challenges with nCino at.
nCino.
com.
That's ncino.
com.
And thanks again to nCinofor sponsoring this episode.
So coming back to the conversation withBrooke and Kirsten and Kirsten, I'd
love to have you hop in here as well.
You know, I know CongressmanMcHenry who, on the financial
(07:08):
services committee was very
interested in stablecoin legislation.
And now we have these two bills, the, the stable
act and the house side and thegenius act on the Senate side.
And I, I'm assuming that is a, a memename based on, you know, one, one of
president Trump's, tweets from longago, but the, the, we've got the
stable act and the genius act and,the genius act just passed the Senate,
(07:31):
banking committee with a, You know,with a significant bipartisan majority,
Kirsten Sutton (07:35):
bipartisan vote.
Yeah, that's right.
It's picked up.
It's a small committee picked upfive Democrats, which is really
interesting, over the objectionsof ranking member Warren, I'll add.
But you're right, Evan, there's been, Ithink, building congressional interest in
digital currency over the past few years.
We've all seen that coming.
I think the difference now is we haveAn administration that is very, very pro
(08:00):
crypto, and we're seeing that manifestitself in lots of different ways.
But in addition to the work that began,I say began, I think it started in the
House, with Mr. McHenry, but there, we sawSenate legislation last Congress as well.
but the noteworthy shift here is, is justreally quickly seeing the Senate Banking
Committee move to mark up the GeniusAct, lots of amendments, there was an
(08:22):
agreement that limited the amount of time.
Spent, debating each amendment, but itwas still, you know, a three hour long
markup, which for banking is a long time.
So lots of interest in Congress,but I think the difference is the
administration expressing this is apriority and we want to get it done.
We're seeing that really have an impact onthe committee's agendas in Senate, Senate
(08:42):
Banking and House Financial Services.
So this issue is kind of moving up.
To the forefront.
and people are watching andwatching very, very closely.
so this, the Senate moved onFriday to mark that bill up
and pushed out a committee.
It still needs to beconsidered on the floor.
And, the house is justslightly behind the Senate.
They've had some hearings, butI have not yet marked up their
(09:04):
version of the legislation.
We anticipate that happening this month.
And, and I think floorconsideration will be coming
quickly for both of these measures.
Evan Sparks (09:12):
Yeah, well, so what would these particular what would these
particular bills do and how would theyhow would they change the existing?
I mean, obviously we havestablecoins out there.
You talked about tether, you knowcircle how would these change the
existing stablecoin landscape
and What are some of the dynamics for in terms
of how these bills if they areenacted in the form that they are?
Currently in could affect thebroader financial services landscape
Kirsten Sutton (09:35):
Yeah, Brooke.
I mean, I'll, so I'll pass it toBrooke, who's our, obviously our,
our expert, and I feel like I learnsomething new every time I hear
Brooke talk about these issues.
I know I'm not alone.
I know a lot of bankers feel likeI do, just being overwhelmed and
trying to, like, learn about allof the dynamic swirling around the
regulation of digital currency.
But the, the goal here, the purpose, is tocreate a framework for, But a regulatory
(09:57):
framework for stablecoin issuance.
but Brooke, maybe you can share kind of how these rules do that.
And the differences between theapproaches in the House and Senate.
Brooke Ybarra (10:06):
Yeah, that's exactly right.
So, I mean, at its core, each of thesebills identifies, several paths that
an entity can take to be approved as
a payment stablecoin issuer.
And
so there's, you know, this process to, to become approved.
And then as part of that, it alsosets out a series of requirements or
(10:27):
obligations that an approved issuer.
will have to follow.
And that's things like, whatreserves, like I mentioned at
the onset, what reserves can back
a payment stablecoin, what type
of disclosures and how often, does an issuer have to share
about its reserves and the composition.
what are the rules that related tocapital, liquidity, risk management,
(10:52):
cyber security, that the, the prudentialregulators actually are going to
jointly develop if these, bills becomelaw and that will be applied to,
payment stablecoin issuers.
You know, what's the process for supervision?
It really sets out to establish aregulatory framework that many aspects
of which will look familiar if you'refamiliar with banking regulations.
(11:16):
But of course it's, it is not asfulsome as banking regulation.
it is, you know, narrow to the activities
of payment stablecoin.
So what
Evan Sparks (11:27):
are some, I know ABA sent up a statement for the record
on the Senate, for the Senate markup.
What are some of the areas where we'dlike to see improvement in the way that
these issues are being discussed as thesebills go through the legislative process?
Brooke Ybarra (11:42):
Yeah.
So, you know, we've really, one, we'vebeen quite engaged with, the committees
and staffers on kind of both, in bothchambers, and, and I should note,
you know, changes have been made tothese bills along the way, many of
which we've advocated for, and we'rereally appreciative that kind of the
industry's voice is being heard as thisimportant legislation is contemplated.
(12:06):
and so we're really appreciative.
We've, we've kind of taken our thinkingaround a couple of key principles.
And, I know many listeners will haveheard us talk about level playing
field and same activity, same risk,same regulation, you know, all of that
very much applies, but we started toreally frame our messaging around, you
know, what some of the risks are andwhat is it important there for that
(12:27):
a payment stablecoin regulatory
framework contemplates.
And so.
You know, first isreally like, do no harm.
Be careful about the economic impactsand potential disintermediation
of the banking industry here.
You know, in some ways youcould think of every dollar.
U. S. Dollar that becomes
(12:48):
a payment stablecoin is in some
ways a dollar that's not in a deposit account at a bank.
And that has real implications.
now there's maybe ways to mitigate that,but that's, we want to just make sure that
the economic impact of this ecosystem.
You know, legitimizing scaling,you know, could becoming
(13:08):
much bigger than it is today.
What impact that might haveon the banking industry?
the second key principle,control for the known risks.
sounds very obvious, but ensure wehave robust, consistently applied
regulations, supervision and enforcement.
You know, this really comes out inensuring there's a consistent federal,
(13:31):
framework, a federal floor for whichall payment stablecoin issuers,
regardless of, you know, I mentionedseveral different paths they can take
to be approved, regardless of whichpath you take, you still are going to
have to follow the same basic rules.
This is important to ensure consistency,trust in the system, consumer
protection, all sorts of things.
(13:53):
and then the third principle is goingto prepare for the unknown risks.
And of course, we can't probablyidentify all of those now.
this market is relatively new.
It's, you know, it's not very bigtoday, but it's growing and there's
visions for it to be much, much bigger.
So it's important in our view thatregulators have the, authority to
(14:14):
respond as the market develops,as we identify emerging risks
that result from this ecosystem.
Evan Sparks (14:22):
Brooke, do you, do you expect that there's, that banks might
be interested in getting into this, intothis, this sector in terms of, as, as
stablecoin issuers and how would thislegislative framework affect, banks
ability to participate in this ecosystem?
Brooke Ybarra (14:35):
Yeah, absolutely.
So, I do.
I do.
And there's a couple different ways.
one, I think the legislationhas actually taken great care
to provide for a bank path to be
a payment stablecoin issuer,
you know, in the way we think of Circle.
so that is an option.
but it also, importantly, thedefinitions are carving out what
(14:58):
sometimes called a tokenized deposit.
So the idea of a bank representing on ablockchain or on a distributed ledger,
an actual deposit, that's not really
a payment stablecoin because it's
not fully reserved with assets kind of
held in custody somewhere else.
It's a deposit and that's the liability.
so it, the legislationwould allow for that.
(15:20):
There's also a role for bank to banks tobe custodians of the assets or, you know,
again, as this ecosystem develops andthere's different payment opportunities,
I think there could be quite a bit ofopportunity, you know, provided the
regulatory framework is established, youknow, and bank regulators are comfortable
(15:42):
with banks participating in the process.
Kirsten Sutton (15:45):
And Evan, if I could add a couple things coming back
to like the congressional view oneverything that Brooke just said,
we're dealing with members of Congressthat have really different views here.
We have some that like, don'teven want banks providing custody
to the crypto community becausethey're so concerned about it.
And then we have others who want to makesure that banks are able to participate.
One noteworthy thing from theHouse hearing recently, I do think
(16:08):
members are also thinking about thisdisintermediation question, and I
think particularly the potentialimpact on banks of different sizes,
you know, for a community bank dealing.
With this if it if it does scale like thatis different than a larger bank dealing
with stablecoins potentially really takingoff and so folks in congress are looking
(16:31):
at this sometimes through different lensesI think there's agreement that there's
a need for and a desire for a framework.
It's just what does thatframework look like?
And we of course want banks to be able toparticipate as well, as Brooke mentioned.
but our bankers listening indon't need me to remind them.
We're dealing with unlevel competitionlike all over the place, right?
(16:51):
Is it credit unions?
Is it farm credit?
just non banks engaging in the offeringof financial services and products.
And so in some ways, theseconversations aren't new.
They're just being appliedto cryptocurrencies now.
And so, Brooke touched on this, butthat level of federal regulation,
what does that look like?
Is this going to be a race to thebottom with the states where the state
that has the least rigorous process?
(17:13):
Everybody's kind of moving tobe issuing out of that state.
Like, what does that mean?
And one other point, that has reallygotten a lot of attention is BS, BSA,
AML requirements and restrictions and solots of bipartisan interest in trying to
make sure that there is accountabilityand sort of safety around these issues.
So I think the momentumis absolutely there.
(17:35):
Some of the detail, the details arestill being hammered out, though.
I think even with this bill movingout of Senate banking and we're
seeing conversations happening.
In the House among the House membersand then between the House and Senate
and also with the administration,our job is to make sure that ABA has
a voice in those conversations, eventhough, you know, there are things
about this legislation that we reallylike, and there are a lot of ways
(17:57):
in which that Brooke's perspective.
Our lobbying team has been ableto take that policy feedback to
these congressional offices andask for changes and improvements.
And we've seen a numberof those improvements.
We want to make sure that we continueto have a voice and that we're part of
the conversations all the way throughto this thing being signed into law.
So a lot of our strategicengagement, Some of it may be a
(18:19):
little bit more behind the scenes.
It's not always going to be throughpushing for amendments or taking
public positions a lot of this ishappening Behind the scenes and we've
been part of those conversationsand we want to make sure that we
continue to be part of them Yeah
Evan Sparks (18:32):
Well, well, I I think it's fair to say we're probably going
to be talking about this at our abawashington summit in a couple Weeks
here almost certainly in april.
So If you're interested in thisconversation, you can learn more at, by
coming to our Washington Summit, in April.
learn more at aba.
com slash summit.
I know Brooke and Kirsten and I wouldlove to, to meet up with you there and,
(18:53):
talk about any number of things thatwe're dealing with and in Washington
on behalf of the banking industry.
But, Brooke and Kirsten, thank you bothso much for being on the show today.
Kirsten Sutton (19:01):
Thanks, Evan.
Thanks, Evan.
Evan Sparks (19:03):
For thanks.
Thanks again to you, to you forlistening and thanks to nCino
for sponsoring today's episode.
We will be back with you again very soon.
first do no harm.
Be careful about the economic impactsand potential disintermediation
of the banking industry here.
You know, in some ways youcould think of every dollar.
U. S. Dollar that becomes
a payment stablecoin is in some
ways a dollar that's not in a deposit account at a bank.
(00:22):
And that has real implications.
Evan Sparks (00:26):
From the American Bankers Association, this is
the ABA Banking Journal podcast.
I'm Evan Sparks.
Today's episode is presented by nCino.
And I'm here with two of my ABAcolleagues, Brooke Ybarra, who is the
head of our Office of Innovation, andKirsten Sutton, who is the Executive
Vice President for CongressionalRelations in our Government Affairs team.
Two incredibly, talented colleagueswho know a lot more than I do about the
(00:48):
subject that we're going to discuss today,
which is stablecoins.
and the stablecoin policy environment
in Washington, D. C. right now.
So, I love it.
Brooke, again, you know waymore about this than I do.
For the purpose and benefitof our listeners, can you
just bring us up to speed?
What is a stablecoin?
And why
are, people in the financial sector interested in this?
(01:10):
particular kind of, of a digital asset.
Brooke Ybarra (01:13):
Yeah, absolutely.
Well, Evan, I'm so glad to bedoing this with you and Kirsten.
So
a payment stablecoin is a type
of cryptocurrency or digital asset that as its name implies
is intended to maintain a stable value.
So oftentimes it uses reserves that areheld in collateral, to maintain the value
(01:34):
of that.
stablecoin at what it's
attended intended.
And so
most often stablecoin is pegged
to the US dollar.
Many of our listeners will probablyhave heard of circle or tether.
These are stablecoins out there thatare in the market pegged to a dollar.
people can buy and sell and trade them,and there's been a real push to develop
(01:57):
a regulatory framework that will apply
to payment stablecoin issuers,
you know, something that will govern the type of reserves
that are eligible to be held to back
that payment stablecoin, or what
types of anti money laundering rules might apply, you know,
a whole host of things you could thinkof, that should be part of a framework
(02:19):
when we're talking about an instrumentset that looks a lot like a dollar.
Evan Sparks (02:24):
So it's like, I mean, so it's the, the opposite use case of a
Bitcoin or Ethereum or whatever, wherethe value fluctuates substantially.
And so people are treating it moreas a investable asset versus, versus,
something that you could use toactually transact on a regular.
Brooke Ybarra (02:42):
Yeah.
It really is.
That's exactly right.
So, you know, the price of Bitcoin,the price of truly thousands and tens
of thousands of other crypto tokensout there that are not asset backed,
you know, who there's a market forthem just based on what someone is
willing to buy or sell that token at,the price will fluctuate accordingly.
(03:04):
Stablecoin is precisely the opposite ofthat in many ways, where it's intended
to be what it It's said that it's, worthit kind of at all times and therefore may
have, applicability as a means of payment.
Evan Sparks (03:18):
So when we
think about a stablecoin, is it just
a new kind of payment rail or is it, is it something else in
terms of how it's structured and whyand what the advantage is for the, for
people who are using it to transact?
Brooke Ybarra (03:33):
So it's a great question.
And the answer is kind of a combo, Ithink of it depends and we'll see, right?
So I think most people even, you know
crypto and stablecoin enthusiasts
would agree The primary use
case for a stablecoin today is
basically to buy in to the crypto ecosystem.
(03:57):
It's much easier to trade inother cryptocurrencies kind
of once you're in the system.
And you get in the system, not usuallywith your US dollars to make that next
trade, but with a crypto token worth aUS dollar, like a circle or a tether.
so that's, that really is thepredominant use case today.
(04:18):
But, you know, there are visions,I think, and, and maybe real
opportunity for stablecoin todevelop as a, a payment rail.
I think there's, that vision holdsmore water, in my view, when we think
of potentially cross border payments.
You know, where there's a real desire by,people and entities outside of the United
(04:43):
States to hold a dollar denominated, And
for them, a stablecoin really could
have a lot of value if they don't have kind of direct assets, or
excuse me, direct access to US dollars.
Evan Sparks (04:56):
Yeah.
And so I mean, so I really want toget to the policy landscape around
this in just a minute here, butI'm just curious a little bit more
as we, drill down on this concept.
You talked about AML issues.
What are some of the challengesthat within our existing regulatory
landscape that affect theissuance and use of stablecoins?
Brooke Ybarra (05:16):
Well, I think so.
One, the technology is different.
I'll say it's it's not fair, Ithink, to call it new anymore.
Distributed ledger and blockchainhave been around for some
time, but it's different.
It's different than kind of rails andsystems that value transact on today.
there are also there's featuresof the blockchain and distributed
(05:38):
ledger that make it in some waysmore transparent and easier to
track value through transactions.
but that's not that transparency isn't, Iwouldn't say obvious to everyday people.
It's, it requires, experts in manycases to identify wallet addresses.
And there's a lot of technology thatcan, that can obfuscate, in many ways,
(06:02):
you know, how, where transactionsare going and, and that can make
the application of, BSA or antimoney laundering rules much harder.
So that's a, that is an area, That thatis requiring some focus, I think, and has
been, you know, a particular interest aswe look at different policy proposals.
Evan Sparks (06:23):
I know I want to take actually a quick moment here, and thank
our sponsor for this episode, nCino.
Today's financial institutionsstrive to achieve efficiency,
boost customer satisfaction,and adapt to changing markets.
nCino provides the tools to digitizeprocesses, consolidate systems, and
drive innovation with more than eight,with more than 1,800 institutions
already benefiting from our, fromtheir platform, and nCino is powering
(06:45):
a new era in financial services.
Learn how you can take the nextstep forward to to solving your
institution's challenges with nCino at.
nCino.
com.
That's ncino.
com.
And thanks again to nCinofor sponsoring this episode.
So coming back to the conversation withBrooke and Kirsten and Kirsten, I'd
love to have you hop in here as well.
You know, I know CongressmanMcHenry who, on the financial
(07:08):
services committee was very
interested in stablecoin legislation.
And now we have these two bills, the, the stable
act and the house side and thegenius act on the Senate side.
And I, I'm assuming that is a, a memename based on, you know, one, one of
president Trump's, tweets from longago, but the, the, we've got the
stable act and the genius act and,the genius act just passed the Senate,
(07:31):
banking committee with a, You know,with a significant bipartisan majority,
Kirsten Sutton (07:35):
bipartisan vote.
Yeah, that's right.
It's picked up.
It's a small committee picked upfive Democrats, which is really
interesting, over the objectionsof ranking member Warren, I'll add.
But you're right, Evan, there's been, Ithink, building congressional interest in
digital currency over the past few years.
We've all seen that coming.
I think the difference now is we haveAn administration that is very, very pro
(08:00):
crypto, and we're seeing that manifestitself in lots of different ways.
But in addition to the work that began,I say began, I think it started in the
House, with Mr. McHenry, but there, we sawSenate legislation last Congress as well.
but the noteworthy shift here is, is justreally quickly seeing the Senate Banking
Committee move to mark up the GeniusAct, lots of amendments, there was an
(08:22):
agreement that limited the amount of time.
Spent, debating each amendment, but itwas still, you know, a three hour long
markup, which for banking is a long time.
So lots of interest in Congress,but I think the difference is the
administration expressing this is apriority and we want to get it done.
We're seeing that really have an impact onthe committee's agendas in Senate, Senate
(08:42):
Banking and House Financial Services.
So this issue is kind of moving up.
To the forefront.
and people are watching andwatching very, very closely.
so this, the Senate moved onFriday to mark that bill up
and pushed out a committee.
It still needs to beconsidered on the floor.
And, the house is justslightly behind the Senate.
They've had some hearings, butI have not yet marked up their
(09:04):
version of the legislation.
We anticipate that happening this month.
And, and I think floorconsideration will be coming
quickly for both of these measures.
Evan Sparks (09:12):
Yeah, well, so what would these particular what would these
particular bills do and how would theyhow would they change the existing?
I mean, obviously we havestablecoins out there.
You talked about tether, you knowcircle how would these change the
existing stablecoin landscape
and What are some of the dynamics for in terms
of how these bills if they areenacted in the form that they are?
Currently in could affect thebroader financial services landscape
Kirsten Sutton (09:35):
Yeah, Brooke.
I mean, I'll, so I'll pass it toBrooke, who's our, obviously our,
our expert, and I feel like I learnsomething new every time I hear
Brooke talk about these issues.
I know I'm not alone.
I know a lot of bankers feel likeI do, just being overwhelmed and
trying to, like, learn about allof the dynamic swirling around the
regulation of digital currency.
But the, the goal here, the purpose, is tocreate a framework for, But a regulatory
(09:57):
framework for stablecoin issuance.
but Brooke, maybe you can share kind of how these rules do that.
And the differences between theapproaches in the House and Senate.
Brooke Ybarra (10:06):
Yeah, that's exactly right.
So, I mean, at its core, each of thesebills identifies, several paths that
an entity can take to be approved as
a payment stablecoin issuer.
And
so there's, you know, this process to, to become approved.
And then as part of that, it alsosets out a series of requirements or
(10:27):
obligations that an approved issuer.
will have to follow.
And that's things like, whatreserves, like I mentioned at
the onset, what reserves can back
a payment stablecoin, what type
of disclosures and how often, does an issuer have to share
about its reserves and the composition.
what are the rules that related tocapital, liquidity, risk management,
(10:52):
cyber security, that the, the prudentialregulators actually are going to
jointly develop if these, bills becomelaw and that will be applied to,
payment stablecoin issuers.
You know, what's the process for supervision?
It really sets out to establish aregulatory framework that many aspects
of which will look familiar if you'refamiliar with banking regulations.
(11:16):
But of course it's, it is not asfulsome as banking regulation.
it is, you know, narrow to the activities
of payment stablecoin.
So what
Evan Sparks (11:27):
are some, I know ABA sent up a statement for the record
on the Senate, for the Senate markup.
What are some of the areas where we'dlike to see improvement in the way that
these issues are being discussed as thesebills go through the legislative process?
Brooke Ybarra (11:42):
Yeah.
So, you know, we've really, one, we'vebeen quite engaged with, the committees
and staffers on kind of both, in bothchambers, and, and I should note,
you know, changes have been made tothese bills along the way, many of
which we've advocated for, and we'rereally appreciative that kind of the
industry's voice is being heard as thisimportant legislation is contemplated.
(12:06):
and so we're really appreciative.
We've, we've kind of taken our thinkingaround a couple of key principles.
And, I know many listeners will haveheard us talk about level playing
field and same activity, same risk,same regulation, you know, all of that
very much applies, but we started toreally frame our messaging around, you
know, what some of the risks are andwhat is it important there for that
(12:27):
a payment stablecoin regulatory
framework contemplates.
And so.
You know, first isreally like, do no harm.
Be careful about the economic impactsand potential disintermediation
of the banking industry here.
You know, in some ways youcould think of every dollar.
U. S. Dollar that becomes
(12:48):
a payment stablecoin is in some
ways a dollar that's not in a deposit account at a bank.
And that has real implications.
now there's maybe ways to mitigate that,but that's, we want to just make sure that
the economic impact of this ecosystem.
You know, legitimizing scaling,you know, could becoming
(13:08):
much bigger than it is today.
What impact that might haveon the banking industry?
the second key principle,control for the known risks.
sounds very obvious, but ensure wehave robust, consistently applied
regulations, supervision and enforcement.
You know, this really comes out inensuring there's a consistent federal,
(13:31):
framework, a federal floor for whichall payment stablecoin issuers,
regardless of, you know, I mentionedseveral different paths they can take
to be approved, regardless of whichpath you take, you still are going to
have to follow the same basic rules.
This is important to ensure consistency,trust in the system, consumer
protection, all sorts of things.
(13:53):
and then the third principle is goingto prepare for the unknown risks.
And of course, we can't probablyidentify all of those now.
this market is relatively new.
It's, you know, it's not very bigtoday, but it's growing and there's
visions for it to be much, much bigger.
So it's important in our view thatregulators have the, authority to
(14:14):
respond as the market develops,as we identify emerging risks
that result from this ecosystem.
Evan Sparks (14:22):
Brooke, do you, do you expect that there's, that banks might
be interested in getting into this, intothis, this sector in terms of, as, as
stablecoin issuers and how would thislegislative framework affect, banks
ability to participate in this ecosystem?
Brooke Ybarra (14:35):
Yeah, absolutely.
So, I do.
I do.
And there's a couple different ways.
one, I think the legislationhas actually taken great care
to provide for a bank path to be
a payment stablecoin issuer,
you know, in the way we think of Circle.
so that is an option.
but it also, importantly, thedefinitions are carving out what
(14:58):
sometimes called a tokenized deposit.
So the idea of a bank representing on ablockchain or on a distributed ledger,
an actual deposit, that's not really
a payment stablecoin because it's
not fully reserved with assets kind of
held in custody somewhere else.
It's a deposit and that's the liability.
so it, the legislationwould allow for that.
(15:20):
There's also a role for bank to banks tobe custodians of the assets or, you know,
again, as this ecosystem develops andthere's different payment opportunities,
I think there could be quite a bit ofopportunity, you know, provided the
regulatory framework is established, youknow, and bank regulators are comfortable
(15:42):
with banks participating in the process.
Kirsten Sutton (15:45):
And Evan, if I could add a couple things coming back
to like the congressional view oneverything that Brooke just said,
we're dealing with members of Congressthat have really different views here.
We have some that like, don'teven want banks providing custody
to the crypto community becausethey're so concerned about it.
And then we have others who want to makesure that banks are able to participate.
One noteworthy thing from theHouse hearing recently, I do think
(16:08):
members are also thinking about thisdisintermediation question, and I
think particularly the potentialimpact on banks of different sizes,
you know, for a community bank dealing.
With this if it if it does scale like thatis different than a larger bank dealing
with stablecoins potentially really takingoff and so folks in congress are looking
(16:31):
at this sometimes through different lensesI think there's agreement that there's
a need for and a desire for a framework.
It's just what does thatframework look like?
And we of course want banks to be able toparticipate as well, as Brooke mentioned.
but our bankers listening indon't need me to remind them.
We're dealing with unlevel competitionlike all over the place, right?
(16:51):
Is it credit unions?
Is it farm credit?
just non banks engaging in the offeringof financial services and products.
And so in some ways, theseconversations aren't new.
They're just being appliedto cryptocurrencies now.
And so, Brooke touched on this, butthat level of federal regulation,
what does that look like?
Is this going to be a race to thebottom with the states where the state
that has the least rigorous process?
(17:13):
Everybody's kind of moving tobe issuing out of that state.
Like, what does that mean?
And one other point, that has reallygotten a lot of attention is BS, BSA,
AML requirements and restrictions and solots of bipartisan interest in trying to
make sure that there is accountabilityand sort of safety around these issues.
So I think the momentumis absolutely there.
(17:35):
Some of the detail, the details arestill being hammered out, though.
I think even with this bill movingout of Senate banking and we're
seeing conversations happening.
In the House among the House membersand then between the House and Senate
and also with the administration,our job is to make sure that ABA has
a voice in those conversations, eventhough, you know, there are things
about this legislation that we reallylike, and there are a lot of ways
(17:57):
in which that Brooke's perspective.
Our lobbying team has been ableto take that policy feedback to
these congressional offices andask for changes and improvements.
And we've seen a numberof those improvements.
We want to make sure that we continueto have a voice and that we're part of
the conversations all the way throughto this thing being signed into law.
So a lot of our strategicengagement, Some of it may be a
(18:19):
little bit more behind the scenes.
It's not always going to be throughpushing for amendments or taking
public positions a lot of this ishappening Behind the scenes and we've
been part of those conversationsand we want to make sure that we
continue to be part of them Yeah
Evan Sparks (18:32):
Well, well, I I think it's fair to say we're probably going
to be talking about this at our abawashington summit in a couple Weeks
here almost certainly in april.
So If you're interested in thisconversation, you can learn more at, by
coming to our Washington Summit, in April.
learn more at aba.
com slash summit.
I know Brooke and Kirsten and I wouldlove to, to meet up with you there and,
(18:53):
talk about any number of things thatwe're dealing with and in Washington
on behalf of the banking industry.
But, Brooke and Kirsten, thank you bothso much for being on the show today.
Kirsten Sutton (19:01):
Thanks, Evan.
Thanks, Evan.
Evan Sparks (19:03):
For thanks.
Thanks again to you, to you forlistening and thanks to nCino
for sponsoring today's episode.
We will be back with you again very soon.
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