Stablecoin issuers and distributors offering customers access to stablecoin yield may essentially be creating their own parallel ecosystem to bank operations, global bank JPMorgan’s chief financial officer said Tuesday.
“The creation of a parallel banking system that is sort of — has all the features of banking, including something that looks a lot like a deposit that pays interest, without sort of the associated prudential safeguards that have been developed over hundreds of years of bank regulation, is an obviously dangerous and undesirable thing,” Jeremy Barnum said in response to an analyst question during the bank’s fourth-quarter earnings call.
The U.S. Senate Banking Committee published a new draft of its crypto market structure legislation late Monday, setting a marker for its latest effort to wrangle crypto markets into a federal regulatory framework. While much of the bill focuses on the jurisdiction of the Securities and Exchange Commission and Commodity Futures Trading Commission, as well as other federal regulators, one section seeks to restrict how crypto companies can offer customers yield rewards on stablecoin deposits.
The provision as outlined would bar both stablecoin issuers and other crypto platforms from directly offering yield, unless the rewards were tied to activities like staking or other transactions.
Barnum, speaking Tuesday morning, said a number of questions, including where securities are purchased from, what sort of effect they would have on “system-wide deposits” and how funds flow between consumers and wholesale providers, would inform what sort of risks stablecoin yield might have on the banking system, without elaborating on these risk factors.
JPMorgan does already offer certain crypto products and services, he noted.
He said that crypto companies offering yield might lead to “the creation of a parallel ecosystem” that offers the same sorts of properties and risks as bank deposits, but “without appropriate regulation.”
“As much as the technology is cool and there’s interesting stuff there, in the end, you have to ask yourself, how does this actually make the consumer experience better?” he said. “And in the cases where it does, we either need to get involved or improve our own service offering.”