House Dems pound on Trump stablecoin during bill markup

Context: The legislation under consideration before the House Financial Servicies Committee Wednesday was the STABLE Act from Rep. Bryan Steil (R.-Wisc) and committee chair French Hill (R.-Ark.).

• The legislation, HR 2392, would create a law governing the issuance of dollar-backed stablecoins by U.S. banks and financial companies.

Friction point: While negotiations around such a measure have been bipartisan, the announcement of a stablecoin linked to the Trump Organization has created a cause for Democrats to defect.

• It started with Rep. Maxine Waters, the committee's ranking member, who sought language in the legislation to keep Trump, Elon Musk and others out of the stablecoin business.
• Waters had previously tried to get bipartisan stablecoin legislation passed in the prior Congress.

How it works: Stablecoin issuers mainly make money from the assets they hold to back a stablecoin's value. These assets, called reserves, are typically comprised of safe instruments such as short-term U.S. treasuries.

• The annual interest earned on these assets can be substantial when there are billions of dollars worth of assets under management.
• If World Liberty Financial's USD1 proves to be popular, it could earn a steady stream of predictable and low-risk profit.

Threat level: Democrats argued that USD1 would be problematic for two reasons:

• People seeking favor with the U.S. government could hold the stablecoin, which would effectively be a way of enriching the family of the president.
• Second, some lawmakers — particularly Rep. Stephen Lynch (D.-Mass.) and Rep. Brad Sherman (D.-Calif.) — raised concerns about a scenario in which USD1 fails, and then secures a government bailout.

What they're saying: Rep. Sam Liccardo (D.-Calif), a co-sponsor of the legislation, offered one of the amendments preventing the President and others from issuing a stablecoin.

• "One would think this would be a fairly self evident and obvious proposition," he said. "We would avoid the inevitable conflicts of interest."

Republicans have resisted the amendments, however.

• Steil argued that the bill places universal requirements on all prospective issuers. "So if you support consumer protection innovation, you should vote for the underlying bill," he said, repeatedly, as he opposed various versions of roughly the same amendment.
• "My view is that the best way to share concerns about the review of any proposed regulations that's pursuant to the STABLE Act, is to make sure that we enact the STABLE act," Hill said. "That will reinforce Congress's view."

Yes, but: Democrats pointed out that their objection wasn't about the regulation of stablecoins, but a conflict of interest by elected officials.

• "The bill does set a framework for issuers of all stripes. [But] this issuer is the President of the United States and is in a position of trust," Lynch pointed out.
• "What we're creating here is a situation where we're authorizing the president to undertake self dealing."

"Both sides of the aisle recognize the importance of passing legislation so that America can lead the way in digital financial technology," a spokesperson for the White House Office of Science and Technology Policy said, responding to a request for comment.

The latest: As of Wednesday afternoon it seemed unlikely that Democrats would succeed in adding an amendment that banned elected leaders holding interest in stablecoins.

• "I'm warning everybody, this is terrible," Waters said during the markup.

The bottom line: The bill currently has three Democratic cosponsors, but the issue seemed to be eroding chances for strong bipartisan support.

• "If there is no effort to block the President of the United States of America from owning his stablecoin business, I will never be able to agree on supporting this bill," Waters said.
• "President Trump directed Congress to pass this legislation and have it on his desk before the August recess," Rep. Tom Emmer (R.-Minn.) said during the hearing.