WASHINGTON — Holders of payment stablecoins would not be eligible for federal deposit insurance even when the assets backing those tokens are held at insured banks, according to the FDIC’s leader.
FDIC Chairman Travis Hill said the agency is drafting a proposal clarifying that payment stablecoins do not qualify for pass-through deposit insurance, a protection sometimes extended to customers of financial technology firms that place customer funds in accounts at insured banks.
Hill, speaking at the American Bankers Association in Washington, said the proposal would also prohibit stablecoin issuers from advertising that the digital tokens—typically pegged to fiat currencies such as the U.S. dollar—are protected by FDIC pass-through insurance.
Need to Answer ‘Definitively’
“In my view, we should answer this question definitively by regulation, rather than waiting until a bank that holds stablecoin reserves fails, when different parties may have different expectations on the availability of FDIC insurance,” Hill said, according to prepared remarks.
Hill noted that the GENIUS Act (Public Law 119-27), stablecoin legislation signed into law last year by President Donald Trump, does not explicitly state that stablecoins are ineligible for pass-through deposit insurance. The law does, however, specify that payment stablecoins themselves are not covered by the FDIC’s insurance fund and prohibits stablecoin operators from advertising that FDIC insurance applies to the tokens, Hill said.
‘Hard to Rationalize’
“It seems hard to rationalize the GENIUS Act’s firm prohibition on marketing stablecoins as subject to deposit insurance if stablecoins were intended to serve as an access mechanism for FDIC-insured deposit accounts,” Hill said.
Hill did not provide a timeline for when the FDIC might release the proposed rule.
As the CU Daily reported earlier, the FDIC in December issued a proposal outlining how banks it supervises could issue payment stablecoins under the GENIUS Act. Under that framework, the agency would evaluate whether banks’ stablecoin-issuing subsidiaries can meet monthly reserve requirements and would require disclosure of the composition of reserves on their websites. The law requires stablecoin issuers to register formally and maintain dollar-for-dollar reserves backing the tokens.
Hill also noted that the Office of the Comptroller of the Currency last month proposed rules implementing other parts of the stablecoin law. The OCC plan would limit companies from issuing branded stablecoins through white-label platforms and from offering rewards tied to those tokens, a policy Hill said has become a point of contention between crypto firms and traditional banks.
In addition to stablecoin policy, Hill said the FDIC is examining ways to make it easier for private, nonbank investors to acquire failed banks.
‘No Path’
“Today, there is no path for nonbank entities to buy such a bank outright in a short period of time, and furthermore the FDIC imposes a number of restrictions on such firms that discourage engagement,” Hill said.
The agency is working to rescind a 2009 policy statement that imposed conditions on private investors—such as private equity firms—seeking to buy or invest in failed banks. The Obama-era policy included higher capital commitment requirements than those applied to banks acquiring failed institutions and strict continuity-of-ownership provisions designed to prevent investors from quickly reselling a bank, according to analysts.
Hill said standard regulatory safeguards would remain in place and that allowing private investors to bid on failed banks would not increase risks to the financial system.
