Lummis-Gillibrand stablecoin bill is beneficial for issuers and could 'spark M&A': TD Cowen

A newly introduced bill in the Senate would be beneficial to stablecoin issuers, according to a note from investment bank TD Cowen.

The Lummis-Gillibrand Payment Stablecoin Act, introduced last week by Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wyo., would create "clear rules of the road," the bank said in a note on Monday.

"Lummis-Gillibrand, in our view, would be positive for stable coin issuers as it would establish clear rules of the road. It also would be symbolically significant for crypto in general as it would be the first constructive crypto legislation from Congress," said the TD Cowen Washington Research Group, led by Jaret Seiberg.

The bill, if passed, will require stablecoin issuers to hold one-to-one cash or cash-equivalent reserves to back their token. It also bans algorithmic stablecoins and says that issuers and users cannot use stablecoins for illicit or unauthorized purposes such as money laundering.

The bill also gives federal and state agencies roles in chartering and enforcement.

Lummis and Gillibrand said they received technical assistance from the Federal Reserve, the Treasury Department and state financial regulators in Wyoming and New York. The Biden administration could support the bill, TD Cowen said, but noted such legislation still faces "significant hurdles" such as keeping support from the White House and being attached to a broader legislative package.

Stablecoin legislation could also kindle M&A, TD Cowen added.

"If this approach is adopted, we believe it could lead to mergers between banks and stable coin issuers as issuers will want the advantages of being a bank and a bank looking to play a role in stable coins will want the user base of an existing issuer," the group said in its note.

Negotiations on the House side

House Financial Services Chair Patrick McHenry, R-N.C., and ranking Democrat Maxine Waters, D-Calif., have been working on a regulatory framework for stablecoins. Industry sources have said talks over who should be the primary regulator for stablecoin issuers have been caught in a holding pattern.

TD Cowen said a compromise between the two could be similar to the Senate bill.

"We still believe the still-being-negotiated deal between House Financial Services Chair Patrick McHenry and Rep. Maxine Waters will be the base text for the eventual bill. Lummis-Gillibrand, however, still matters as it offers insight into what we can expect from McHenry and Waters," TD Cowen said in its note.

On the Senate side, Sen. Sherrod Brown, D-Ohio, would be integral to the passage of a stablecoin bill. The Senate Banking Committee chair told Bloomberg last week he is open to advancing stablecoin legislation in a package with a bill to allow banks to do business with marijuana business and other measures.