NY Fed Provides New Coverage Blocking Stablecoin Issuer Circle To Fed Program

• The NY Fed up to date its counterparty standards for the RRP, stopping Circle from accessing this system.
• The NY Fed’s new guidelines make single-owner funds ineligible for the RRP, together with Circle Reserve Fund managed by BlackRock.
• RRP gives low-risk, high-yield lending to Fed at 4.8%, whereas program funds attain $2.3 trillion.

On Wednesday, the Federal Reserve Financial institution of New York (NY Fed) modified its counterparty standards for its reverse-repurchase program (RRP), doubtlessly blocking stablecoin issuer Circle from accessing this system.

The NY Fed introduced that underneath the brand new guidelines, funds registered as “2a-7 funds” with the SEC and “organized for a single helpful proprietor” might be ineligible for its reverse-repurchase program. This might embody the Circle Reserve Fund, managed by BlackRock Advisors.

The RRP permits chosen counterparties to lend to the Fed at a hard and fast price of 4.8%, turning into a worthwhile choice with low counterparty danger. Initially created to stabilize the monetary system, funds in this system have now grown to nearly $2.3 trillion.

In January, the Financial institution Coverage Institute, a key U.S. financial institution advocacy group, acknowledged that if Circle’s USDC had been to realize entry to the RRP, it could create a “stablecoin successfully backed by the Fed,” which may doubtlessly destabilize the monetary system.

Furthermore, Nick Timiraos, chief financial correspondent of The Wall Road Journal, tweeted that the Federal Reserve Financial institution of New York has revised the eligibility guidelines for the ONRRP facility, which can lead to stablecoins being denied entry.

Circle holds $25 billion of USDC’s reserves in a BlackRock-managed fund referred to as the Circle Reserve Fund, registered as a “2a-7” authorities cash market fund. Circle’s objective for the fund was to realize entry to the Fed’s RRP by BlackRock, permitting USDC’s remaining money reserves to be moved underneath a Fed account.

Moreover, USDC confronted a disaster final month as a result of sudden collapse of banking associate Silicon Valley Financial institution, leaving $3.3 billion of USDC’s money reserves inaccessible for days. Circle now holds its money reserves primarily at BNY Mellon to cut back banking system danger.

The disaster triggered over $10 billion in USDC outflows, exposing the dangers fiat-backed stablecoins face within the conventional banking system.