'We Have To Respect The Rights Of States To Have Their Own Regulatory Regime': Mike Flood

14 hours ago

During a House Financial Services Committee hearing prior to the Congressional recess, Rep. Mike Flood (R-NE) questioned witnesses about federal and state digital asset regulations.

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Transcript

00:00I thank the gentleman. The gentleman from Nebraska and also the chairman of the

00:05Housing and Insurance Subcommittee, Mr. Flood, is now recognized for five

00:08minutes. Thank you, Chairman. My interest in stable coins goes back to the work I

00:13did in the Nebraska Unicameral Legislature on this very issue. After my

00:17bill entitled the Nebraska Financial Innovation Act passed, Nebraska became

00:21the second state to have a regulatory structure for a new kind of state

00:25chartered bank called a Digital Asset Depository Institution. A Nebraska

00:30Digital Asset Depository Institution can issue stable coins, which puts my state

00:34in a unique position as it relates to the broader debate about a state pathway

00:38within this bill. Due to the laws in our state, I'm interested in the state

00:43pathway specifically as it relates to state chartered bank issuers. My hope is

00:48that any federal stable coin legislation will work hand-in-glove with our

00:52Nebraska Department of Banking and Finance and the work they are already

00:55taking on these very issues, and I appreciate the continued dialogue we've

00:59had with Chairman Hill and his team on ensuring that we strike just the right

01:03balance. Mr. Gwynne, can you please walk through your understanding of how the

01:08Stable Act would regulate a state chartered bank subsidiary that issues a

01:13stable coin pursuant to the bill's state pathway? So, as I understand it, there

01:19would be, there's sort of two possible regulatory frameworks. One is 4A, which

01:23sets federal standards, and then 4B, that would allow a state to have an

01:28alternative regulatory regime that would satisfy or exceed those standards. So,

01:32it's a little bit more restrictive than the dual banking system, where states

01:36have a little bit more freedom because the federal standards simply, it's not

01:40that they don't apply, it's that they cover a much narrower field of

01:44applicability, whereas here the standards are pretty comprehensive. Good answer,

01:49because you answered my second question about how it compares to the dual

01:51banking system, so thank you. I'd like to emphasize a few things about the state

01:55pathway before moving on to my next question. One is that state regulars must

02:00get a certification approved by the Treasury, as you've said, showing that

02:03their state regime is in line with the bill's federal requirements or exceeding

02:07the federal requirements. In addition, there is an exigent circumstances

02:11provision in the bill that would allow a federal regulator to step in over a

02:15state regulator and enforce directly on state issuers in certain circumstances.

02:19And quite honestly, this has concerned me, just what is an exigent circumstance, but

02:24in other words, even the state pathway has a very extensive federal involvement.

02:29With that caveat, I'd like to highlight a line in Mr. Cascarilla's testimony, which

02:35said the following as it related to cross-border regulation of state

02:39chartered stablecoin issuers, and I quote, primary oversight should remain with

02:44state chartered issuers, home state regulator, avoiding redundant regulatory

02:49burdens, end quote. Mr. Cascarilla, if a state pathway for insurance doesn't

02:54include some form of regulatory primacy for the rules of their home state

02:58regulator, would state issuers juggling several state regulatory laws be at a

03:04disadvantage relative to issuers that receive a federal charter? Yes, they would,

03:09and I think that is the exact point, which is today as a state issuer, you

03:15have to juggle a number of different state approvals and and exams, and that

03:21is a conflicting process that takes up a lot of resources and could certainly

03:25snowball in a situation like this. I appreciate that answer, and let me just

03:30say this, does anybody in this room not think that the New York DFS could handle

03:33this? I mean, we have to respect the rights of states to have their own

03:36regulatory regime. Mr. Gwinn, can you comment on the same question? You know,

03:41juggling all these different regulators, does it put the state chartered issuers

03:44at a disadvantage? So, look, we get this question all the time from state issuers

03:49as a law firm. There's always a choice, but having a choice between a

03:55state and a federal regulatory authority is a good choice to have, and so it may well be

04:00that a particular institution decides, I have more freedom to innovate if I'm

04:05regulated by a state, even if I have to go through the headache of looking at

04:08all these different state laws, whereas if I go with a national regulatory,

04:13then it will be preempted. Totally agree, and let's remember what makes

04:19America the best financial market in the world, what makes us so successful is we

04:23have diversity in our banking. We have the G-SIBs, we have the regional banks, we

04:28have the community banks, we have the federal chartered, we have the state

04:31chartered, and we have innovation. When you control all of that, you get Europe,

04:35with a couple of banks and a couple of board of directors that are making the

04:39decisions for every consumer on the continent, and so let's celebrate what

04:45makes America strong by encouraging diversity, relying on states to

04:52manage and regulate state issuers of stable coins with appropriate safeguards.

04:56I want to compliment Chairman Hill, Brian Stile, Mr. Davidson, Allison, and all of

05:02the work that the staff has done. We are in a good place because of the hard work

05:06of this committee, and I'm excited to see this bill pass. With that, I yield back.

'We Have To Respect The Rights Of States To Have Their Own Regulatory Regime': Mike Flood

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