Stablecoins revive US narrow banking debate

Legislators suggest simplified bank rules to regulate issuers, but Federal Reserve is cautious

Kansas City Federal Reserve
Custodia Bank and Kraken applied for narrow bank status with the Kansas City Fed in 2020
David R. Frazier Photolibrary, Inc. / Alamy Stock Photo

US lawmakers’ quest for ways to regulate stablecoin issuers could revive interest in ‘narrow banks’, which place customer funds purely with the Federal Reserve, and benefit from a slimmed-down regulatory regime to reflect the very low-risk business model. The trouble is, the Fed never liked the idea in the first place.

A draft bill proposed by Senator Pat Toomey, a senior Republican lawmaker, would authorise the Office of the Comptroller of the Currency (OCC) to license and regulate stablecoin

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