US OCC: Regulation could help stabilize stablecoins and prevent potential bank runs

According to the US Office of the Comptroller of the Currency (OCC), which is responsible for regulating all banks in the country, a sound regulatory framework could help increase user confidence in stablecoins and avoid possible risks.

Compilation of US currency written by Michael J. Hsu specified at the US Corporate Transatlantic Financial Forum on January 13, 2022, highlighting the benefits of regulating the crypto space, particularly stablecoins, to provide reassurance and protection for those using this type of technology.

Michael J Hsu

During the speech, Hsu argued that the growth of the crypto industry is so rapid that the regulatory apathy of the past few years is no longer sustainable and that a solid regulatory framework needs to be put in place.

He argues that more legal attention is needed before it’s too late as more unbanked people use cryptocurrencies to replace banks and see no need for trusted third parties in remittances:

“Cryptocurrency’s popularity has come despite regulatory and legal uncertainty, as well as a series of scams, hacks, and other disruptive events. For finance managers like me, this raises a number of questions. What should management focus on? what should be done By whom? And why?”

Stablecoins Stabilization

For the OCC, the stablecoin regulation serves not only to fight crime, but also to prevent potential dangers. Running a bank is the most obvious of all.

Bank run is a period of panic that occurs when a large number of depositors withdraw from the bank for fear of bankruptcy or a crisis in the institution. In most cases, due to the business model in which the bank operates, banks cannot issue physical cash to all depositors since their money is in someone else’s hands.

In traditional finance, regulators can step in. However, there is little they can do when it comes to cryptocurrencies – decentralized cryptocurrencies. This is particularly notable in the case of stablecoins, as they are the bedrock for traditional investors entering the crypto world with confidence that each stablecoin is backed by equivalent fiat value, and if that confidence is broken, it could a bank run that is hurting the crypto world pretty badly.

“Fortunately, we have an effective risk mitigation tool: banking regulation. Stablecoin issuers that follow banking regulation give holders confidence that these coins are just as trustworthy and “good money” as bank deposits. Even in the event of a mass withdrawal, the reserves are there, monitored and controlled by the banking supervisory authority.”

In fact, the daily trading volume of USDT alone is already almost three times that of Bitcoin, making a bank run that could affect the entire crypto industry highly unlikely. In theory, regulations could help ensure that stablecoins are truly “stable” and worry-free.

strategy qCryptocurrency Regulation

The United States has sought increasing control over cryptocurrencies to avert another potential hazard from a geopolitical perspective: the loss of global leverage from the dollar.

Last year, PayPal’s CEO speculated that Bitcoin could be used as a financial weapon by China. Some politicians have also warned of the possibility that cryptocurrencies could diminish the dollar’s strength unless action is taken soon.

The use of cryptocurrencies in the criminal underworld is also a political argument.

Likewise, the recent US Infrastructure Act could negatively impact the crypto industry due to excessive — and even implausible — KYC requirements for a variety of actors, which can range from exchanges to wallets to decentralized protocols.

Also, this week, Jerome Powell said he was ready to release a report on the digital dollar, so this year could be a pivotal moment for the US definition of regulation in the crypto world.

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