Banking regulation can increase confidence in stablecoins, said Michael Hsu, acting head of the OCC at the US Treasury.
The official has drawn attention to the hypothetical situation of “banking panic” among holders of “stablecoins,” He has explained:
“Vulnerabilities accumulate over time and are largely ignored until a small group of participants start to get nervous and back off without attracting attention.”
The trigger may be a slowdown in the inflow or outflow of funds from this market segment, which can inspire fear and uncertainty among investors. He added:
“In situations like this, with banking regulation in place, reserves would be controlled and monitored by supervisors. Issuers could also have access to the Fed’s ‘discount window’ to meet short-term liquidity needs, if warranted.”
Bank-level regulation would be a “win-win” for holders of the “oxygen of the crypto-ecosystem” – converting to fiat would not cause problems, and the removal of regulatory uncertainty would lead to innovation.
According to the head of the OCC, the financial system as a whole will also benefit from this, given the growing interconnection of digital assets and traditional institutions.