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.”
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.