FDIC Chief Says Stablecoins Won’t Get Deposit Insurance

TLDR

• FDIC Chairman Travis Hill said stablecoins will not qualify for federal deposit insurance under the GENIUS Act.
• The FDIC plans to propose a rule that bars pass-through insurance for payment stablecoins.
• Hill said many stablecoin arrangements do not meet current pass-through insurance requirements.
• The GENIUS Act requires stablecoin issuers to hold full reserves for their tokens.
• The law separates stablecoins from bank deposits insured up to $250,000.

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Federal regulators confirmed that stablecoins will not receive federal deposit insurance under new U.S. rules. FDIC Chairman Travis Hill said the agency plans to bar pass-through insurance for these tokens. He spoke at an American Bankers Association summit in Washington and outlined how the GENIUS Act applies.

Stablecoins Barred from FDIC Protection Under GENIUS Act

Hill said the GENIUS Act excludes stablecoins from FDIC insurance coverage. He stated that the agency plans to clarify this position through a formal proposal. He told bankers that payment stablecoins under the law will not qualify for pass-through insurance.

He explained that the law does not directly mention pass-through arrangements. However, he added that such a ban follows the intent of Congress.

Hill said current rules require firms to identify end customers in the regular course. He noted that many large stablecoin structures do not meet that condition today.

The GENIUS Act requires issuers to hold full reserves for their tokens. Therefore, issuers must back tokens like Circle’s USDC and Tether’s USDT with equivalent assets. The law separates these tokens from bank deposits insured up to $250,000.

Banks Weigh Deposit Shifts as Tokenized Deposits Gain Attention

Banking groups have raised concerns about stablecoins offering yield features. They argue that such products could disrupt traditional deposit relationships. Deposits form the core funding base for bank lending.

Jefferies analysts said stablecoin growth could reduce core bank deposits by 3% to 5% over five years. They warned that such shifts could affect bank earnings. However, Hill said moving funds into a stablecoin does not remove money from the banking system.

He stated that deposit flows may change distribution across institutions. He said these shifts could alter how deposits spread within the system. He addressed these points during his remarks in Washington.

White House crypto adviser Patrick Witt defended the Digital Asset Market Clarity Act. He posted on X that lawmakers should keep the bill pro-innovation.

Witt said critics should not turn the bill into an anti-competition measure. He called the attempts to derail the process shameful. His comments came one day before Hill’s speech.

Hill also discussed tokenized deposits during his address. He said regulators must decide how to treat deposits recorded on blockchains. He stated that tokenized deposits likely qualify as deposits under existing law.

He said tokenized deposits should receive the same insurance treatment as traditional accounts. He added that technology does not change their legal status. Regulators are still weighing that position under the GENIUS Act framework.

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