![\"US](\"https:\/\/www.cryptocabaret.com\/wp-content\/uploads\/2022\/05\/powell-and-yellen.jpg\")
<\/p>\n<\/p>\n
As U.S. lawmakers push for the urgent regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve Board warn about the risks of stablecoin runs that threaten the country\u2019s financial stability. Treasury Secretary Janet Yellen brought up the terrausd (UST) fiasco as an example of why a comprehensive regulatory framework is urgently needed.<\/strong>\n<\/p>\n \n On Tuesday, U.S. Treasury Secretary Janet Yellen brought up UST as an example of a \u201cstablecoin run\u201d during her testimony before the Senate Committee on Banking, Housing, and Urban Affairs on the Financial Stability Oversight Council (FSOC) Annual Report<\/a>.<\/p>\n Senator Pat Toomey (R-Pa.) asked Yellen to confirm her view on the need to regulate stablecoins. \u201cI would like to ask if you can confirm for the record here that it is still your view that it is important, I would argue even urgent, for Congress to pass legislation governing the regulations of the payment stablecoins,\u201d he said.<\/p>\n Yellen replied:\n<\/p>\n Yes, I\u2019m happy to confirm that, Senator Toomey.<\/p>\n<\/blockquote>\n \n The treasury secretary elaborated: \u201cI would urge a bipartisan action to create such a framework. We would look forward to working with you.\u201d She added:\n<\/p>\n There was a report this morning in the Wall Street Journal that a stablecoin known as terrausd [UST] experienced a run and had declined in value.<\/p>\n<\/blockquote>\n \n Toomey quickly responded: \u201cIt\u2019s important to note that the stablecoin to which you refer, I believe, is an algorithmic stablecoin. So that means by definition it is not backed by cash or securities as the \u2014 if you can call them \u2014 \u2018more conventional stablecoins.’\u201d<\/p>\n The stablecoin terrausd (UST) lost its parity<\/a> with the U.S. dollar and dropped to an all-time low of $0.66 per unit on Monday.\n<\/p>\n \n If stablecoin issuers do not honor a request to redeem a stablecoin, or if users lose confidence in a stablecoin issuer\u2019s ability to honor such a request, runs on the arrangement could occur that may result in harm to users and the broader financial system.<\/p>\n<\/blockquote>\n \n<\/p>\n \n Among the risks discussed in the report is \u201cfunding risks,\u201d which \u201cexpose the financial system to the possibility that investors will \u2018run\u2019 by withdrawing their funds from a particular institution or sector,\u201d the report details, elaborating:\n<\/p>\n Some types of money market funds (MMFs) and stablecoins remain prone to runs.<\/p>\n<\/blockquote>\n \n What do you think about Treasury Secretary Yellen\u2019s comments and the warnings by the Federal Reserve and the Financial Stability Oversight Council on stablecoins? Let us know in the comments section below.<\/strong><\/em><\/p>\nTreasury Secretary Janet Yellen Testifies Before Senate Committee<\/h2>\n
\nStablecoins have become a hot topic in Washington. Following Monday\u2019s terrausd (UST) fiasco, U.S. lawmakers are calling for the urgent regulation of stablecoins.<\/p>\n\n
\nShe continued: \u201cThe president\u2019s working group issued a report concluding that the current statutory and regulatory frameworks don\u2019t provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment products, and urges Congress to enact legislation to ensure that stablecoins and such arrangements have a federal prudential framework.\u201d<\/p>\n\n
\n\u201cI think that simply illustrates that this is a rapidly growing product and there are risks to financial stability and we need a framework that\u2019s appropriate,\u201d Yellen stressed.<\/p>\nFinancial Stability Oversight Council Annual Report Warns About Stablecoin Runs<\/h2>\n
\nThe FSOC annual report<\/a> also states that stablecoins may be vulnerable to run risks. Noting that \u201cthe potential for the increased use of stablecoins as a means of payment raises a range of prudential concerns,\u201d the report states:\n<\/p>\n\n
Federal Reserve Board\u2019s Report on Financial Stability Says Stablecoins Are Prone to Runs<\/h2>\n
\nThe FSOC\u2019s view on stablecoins is shared by the Federal Reserve. The Board of Governors of the Federal Reserve System published its semi-annual Financial Stability Report<\/a> Monday similarly warning about the run risks of stablecoins.<\/p>\n\n
\nIn addition, \u201cThe stablecoin sector continued to grow rapidly and remains exposed to liquidity risks,\u201d the report notes.<\/p>\n