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A consortium of five U.S. banks recently announced plans to allow each member to mint a stablecoin, USDF, that would be redeemable at that bank or at any bank in the consortium. The banks involved are community and regional banks--New York Community Bank (NYCB), Synovus, Bank, Sterling National Bank, FirstBank, and NBH Bank—and the consortium is marketing itself to other community banks as potential members.

USDF will operate on the public Provenance Blockchain, and Figure Technologies, which operates the Provenance Blockchain and which we wrote about last year, is also participating in the consortium, along with JAM Fintop. According to the consortium, USDF, which has already been issued by NYCB, will be redeemable at any bank in the consortium on a 1:1 basis with the U.S. dollar.

The consortium highlights its members’ status as FDIC-insured banks as well as its “adherence to regulatory standards. The consortium is open to new members; membership criteria require, among other things, that new banks joining the consortium be FDIC-insured, certify to BSA/AML compliance, be well-capitalized, and be willing to seek the “supervisory non-objection” required by the OCC since November for national banks to engage in specified cryptocurrency and stablecoin activities.

The consortium’s approach to stablecoins allows its members to participate in the issuance of stablecoins by taking advantage of their bank charters in an effort to “thread the needle” with respect to regulatory expectations. The recent multi-agency report on regulation of stablecoins that we wrote about in November recommended that stablecoins be minted by banks in order to ensure that issuers of stablecoins are subject to federal prudential regulation and have access to the federal “safety net.”

LEGAL TOKENS

One regulatory question that the consortium has not addressed publicly is whether FDIC “pass-through” insurance (FDIC insurance that covers depositors holding deposit obligations through a third-party) would be available to holders of stablecoins minted by one bank in the consortium. This would require the consortium to treat each stablecoin holder as having an undivided, or pro rata, interest in deposits at each bank in the consortium. The existing FDIC guidance on this issue is limited and ambiguous. The FDIC has been internally considering regulatory issues relating to stablecoins, but has not yet issued any guidance on the availability of pass-through insurance for an arrangement like the consortium.

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Author's Assets

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Nathan Brownback | Associate

Nathan is a member of Seward & Kissel’s Financial Services Regulatory Group, where he focuses on the regulation of domestic and foreign banks, with particular emphasis on regulation under the Dodd-Frank Act, including the Volcker Rule. He also advises on matters related to fintech, commercial lending, bank holding company regulation, bank affiliate transactions, and merchant banking rules. Prior to receiving his law degree, Nathan was an economic research analyst, first in the private sector and subsequently for a regional Federal Reserve Bank.

Casey Jennings

Casey Jennings | Associate

A member of Seward & Kissel’s Financial Services Regulatory Group and Blockchain and Cryptocurrency Group, Casey advises financial services companies – including banks, broker-dealers, investment funds, service providers, and financial technology companies – on federal and state banking and securities law issues and the structuring of new financial products, including anti-money laundering, deposit issues, token offerings, custody of traditional and crypto assets, transfer and liquidity issues, Volcker Rule issues, and investments in crypto assets by funds and other investors. Before joining the firm, Casey served as counsel to the Consumer Financial Protection Bureau, where he developed and implemented financial regulatory policy, including the first CFPB rulemaking to rely on unfair, deceptive, and abusive acts and practices (UDAAPs) authority. Since then, he has:

  • Represented e-retailer APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of the online marketplace, OneGold.com.

“The whole notion of crypto is that there are no gatekeepers and the BSA requires that there be gatekeepers. Those two notions are very much at odds with one another. But the BSA is the best system that we’ve got right now.”

Casey’s perspective on crypto AML regulations as published in Cointelegraph article “How U.S. authorities are using old AML tools to crack down on crypto”