FDIC chair says no deposit insurance for stablecoins under GENIUS Act

A proposed plan by the agency would ban “pass-through insurance“ for stablecoins by third parties in addition to the FDIC not insuring deposits under the law.

Travis Hill, chair of the US Federal Deposit Insurance Corporation (FDIC), confirmed that, in his opinion, a law passed in July would not give the agency the authority to guarantee stablecoin deposits. 

In remarks prepared for the American Bankers Association (ABA) Washington Summit on Wednesday, Hill said that under rules for the stablecoin payments bill, the GENIUS Act, the FDIC would not allow the government to guarantee deposits once the law was fully implemented. Similarly, stablecoin issuers would be prohibited from representing that the digital assets were FDIC insured, and a proposed plan would stop “pass-through insurance” by third parties.

“If a payment stablecoin arrangement qualified for pass-through insurance, this would mean that if a bank holding the issuer’s reserves in a deposit account failed, the FDIC would insure the deposit account based on the interests of the stablecoin holders, rather than insuring the account as a corporate deposit account eligible for only $250,000 of insurance,” said Hill.

The GENIUS Act, passed by Congress and signed into law by US President Donald Trump in July, established a US regulatory framework for payment stablecoins. The law will be fully implemented 18 months after it was signed or 120 days after related regulations are finalized in agencies like the FDIC and Treasury Department.

While the FDIC may not be insuring stablecoin holders’ deposits, issuers will be expected to fully back the dollar-pegged coins.

Stablecoin yield debate continues in market structure bill

Hill’s remarks did not include a discussion of the digital asset market structure bill under consideration in the US Senate, where lawmakers and crypto and banking industry representatives have been clashing over how to handle stablecoin yield, tokenized equities, and ethics.

The ABA said in late January that one of several priorities it has this year is to “stop payment stablecoins from becoming deposit substitutes that slash community bank lending by prohibiting paying interest, yield or rewards regardless of the platform.”

The White House has hosted three meetings with industry leaders so far this year to discuss how to move forward on the bill, but it was unclear as of Wednesday if or when it would advance.