Sen. Elizabeth Warren urges top House lawmakers to weigh the 'gravity' of risks as they work on a stablecoin bill

Crypto critic Sen. Elizabeth Warren cautioned House lawmakers working on a bill to regulate stablecoins that the assets pose risks to the banking system and national security, according to a letter first reported on by Politico and also sent to The Block by Warren's office. 

In a letter to House Financial Services Committee Chair Patrick McHenry, R-N.C., and Rep. Maxine Waters, D-Calif., Warren was critical of their efforts to push forward a stablecoin bill, which has already faced its own hurdles over the past year. 

"Efforts to create new regulatory frameworks around the $157 billion stablecoin market, including those that aim to fold stablecoins deeper into the banking sector, could amplify and entrench these risks rather than mitigate them," Warren said in the letter dated April 8. "I urge you to remember the gravity of these risks as your committee consider proposals to regulate stablecoins and avoid introducing stablecoin legislation that holds the potential of unleashing another financial crisis."

The stablecoin bill advanced out of the House Financial Services Committee over the summer but was caught up in bipartisan bickering, with Congressional Republicans blaming the White House for opposition to the bill. At the time, Waters said the bill was "deeply problematic" due to a provision that allows state regulators to approve stablecoin issuances without Federal Reserve input.

Ranking Democrat Waters and McHenry have been working on a framework, though talks have been in a holding pattern for months over who should be the primary regulator for stablecoin issuers. 

Warren's letter could dampen support for a stablecoin bill in the Senate. Warren is a member of the Senate Banking Committee, which has been focused on other priorities outside of crypto, including housing. That committee is led by Sen. Sherrod Brown, who has also been weary of crypto. 

Illicit finance concerns

Warren also voiced concerns in her letter about stablecoins being used in illicit finance, citing past remarks from the U.S. Department of Treasury. Treasury scrutinized the increased use of stablecoins in a terrorist financing report published in February. 

The Senate Banking Committee is holding a hearing on Tuesday to discuss illicit finance and stablecoins are likely to be brought up. U.S. Deputy Treasury Secretary Wally Adeyemo, who will testify on Tuesday morning, has voiced concerns over the use of "dollar-based stablecoins" and urged procedures to be put in place to block terrorists. 

Warren advised lawmakers to tread carefully. 

"As Congress continues to deliberate over the appropriate regulatory framework for stablecoins, policymakers should be weary of efforts to integrate stablecoins into the formal banking system – or extend any of the concomitant safety net protections to stablecoin issuers – without strong rules that ensure safety and soundness, respect the bedrock principle of 'same risk, same activity, same regulation,' and mitigate risks to consumers, financial stability, and our national security," Warren said. 

Updated at 2:48 p.m. UTC time to add details throughout