Randy Guynn, a leading U.S. banking attorney, has advocated for bank-level regulation of stablecoins, arguing that issuers should maintain liquidity reserves and capital buffers similar to those required for banks. Speaking before the U.S. House Financial Services Committee, Guynn highlighted the need for financial stability and consumer protection in the growing digital payments sector.

Stablecoins as Digital Private Money

Proper oversight could enhance trust and financial stability

Guynn, chairman of the Financial Institutions Group at Davis Polk & Wardwell LLP, emphasized that stablecoins function as digital private money and should be regulated accordingly.

Key points from his testimony:

• Stablecoins should maintain capital buffers to ensure financial stability.
• Well-regulated stablecoins can be as safe as insured bank deposits.
• Historical parallels show that private money innovations have shaped financial systems.

“If a payment stablecoin issuer has a properly calibrated reserve of liquid assets, capital buffer, and no material amount of other liabilities, payment stablecoins should be as safe as insured bank deposits and central bank money,” Guynn stated.

Potential Risks Without Proper Oversight

Unregulated stablecoins could pose financial stability risks

Guynn warned that without robust regulation, stablecoins could introduce systemic risks similar to past banking crises. His concerns align with ongoing discussions around the Stablecoin Regulation Act, which aims to create clear rules for issuers.

• Lack of reserves could lead to financial instability.
• No clear regulatory framework leaves consumers vulnerable.
• Stablecoin collapses could have ripple effects on traditional finance.

“People have been free during most of human history to innovate in the creation of private money without government interference,” Guynn noted. However, he argued that modern financial stability requires proper oversight.

The Future of Stablecoin Regulation

Should stablecoins be regulated as banks, money market funds, or a new category?

Guynn’s testimony adds to the debate over how stablecoins should be classified in the financial system. Some policymakers advocate for:

• Bank-like regulation, requiring capital and liquidity reserves.
• Money market fund rules, focusing on investor protections.
• A new regulatory framework, tailored to stablecoins' unique role.

With Congress debating the Stablecoin Regulation Act, the future of digital dollar-backed assets remains a key issue for regulators and the crypto industry.