Stablecoins Without FDIC Protection

The chairman of the U.S. Federal Deposit Insurance Corporation (FDIC), Travis Hill, believes that upcoming regulations on stablecoins will not allow the agency to insure deposits related to these assets.

Speaking in remarks prepared for the American Bankers Association summit in Washington, Hill referred to provisions of the GENIUS Act. According to his interpretation, the legislation does not grant the FDIC the authority to guarantee deposits connected to stablecoins. This means that once the law is fully implemented, the government will not be able to provide such protection to users of these digital assets.

In addition, stablecoin issuers will not be allowed to suggest that their tokens are covered by FDIC insurance. The planned regulations are also expected to block so-called “pass-through insurance” offered by third-party entities.

Hill explained that such a mechanism would work differently from standard deposit insurance. If a bank holding the reserves of a stablecoin issuer were to fail, protection could theoretically extend to funds belonging to stablecoin holders. Under normal circumstances, however, a corporate bank account is insured by the FDIC only up to $250,000.

The GENIUS Act was passed by Congress and signed into law by U.S. President Donald Trump in July. It establishes a regulatory framework for stablecoins used in payments. The rules are expected to take full effect either 18 months after the law was signed or 120 days after regulatory agencies such as the FDIC and the Treasury Department complete detailed implementation guidelines.

Although user deposits will not be protected by FDIC insurance, stablecoin issuers will still be required to fully back their tokens with reserves equivalent to the U.S. dollar.

At the same time, the Senate is debating a broader bill concerning the structure of the digital asset market. Disagreements focus on issues such as whether stablecoins should be allowed to generate yields, the regulation of tokenized stocks, and certain ethical concerns.

At the end of January, the American Bankers Association stated that one of its priorities is preventing stablecoins from becoming a direct alternative to traditional bank deposits. The organization is advocating for a ban on interest payments, rewards, or other profit-generating mechanisms linked to such tokens.

This year, White House representatives have already met three times with industry leaders to discuss the future of the legislation. However, it is still unclear when the bill will move forward in the legislative process.