Davis Polk partner Jai Massari was quoted in a Roll Call article discussing the future of stablecoin regulation.

Jai, who in December testified about stablecoins before the Senate Banking Committee, explained that “the banking regulations are designed to regulate institutions that take deposits and make investments in long-term and illiquid instruments — not where liabilities are backed one to one by short-term, liquid assets.” She questions whether the regulations would allow banks to issue stablecoins and make a profit given leverage ratios.

"Bank leverage ratios do not distinguish between risky and less risky assets held by banks," Jai explained. "This results in a true stablecoin business model being uneconomical for a bank because the short-term, liquid assets held as the stablecoin reserve do not generate the same kinds of returns as riskier investments, and yet the bank must hold the same amount of capital under currently applicable leverage ratios for those assets as it would for riskier assets." She added that it “may be difficult for bank regulators to address this issue…without additional direction or authority from Congress.” 

Systemic risk seen as potential route to stablecoin regulation,” Roll Call, (January 11, 2022)