Dive Brief:

• The Federal Deposit Insurance Corporation plans to propose excluding stablecoins from pass-through insurance eligibility, FDIC Chairman Travis Hill said during an American Bankers Association conference event in Washington last week.
• Hill contended during the ABA’s Washington Summit Wednesday that the Genius Act passed last year bars stablecoins from having access to federal deposit insurance.
• “Treating stablecoin holders as the insured depositors, even on a pass-through basis, seems inconsistent with the GENIUS Act’s prohibition on payment stablecoins being ‘subject to Federal deposit insurance,’” Hill said, according to the transcript, referencing a new law pertaining to stablecoin oversight.

Dive Insight:

Following passage of the Genius Act, which is short for the Guiding and Establishing National Innovation for U.S. Stablecoins, the FDIC and other financial regulators are still sorting out what the legislation will mean for the U.S. financial system. 

The Genius Act set out to establish regulations for payment stablecoins. But shortly after President Donald Trump signed the bill into law, Consumer Reports criticized it for failing to provide federal insurance protection against consumer losses, providing inadequate federal oversight and not requiring third-party audits to ensure consumer reserves.

Now, the FDIC is weighing protections for stablecoins. Pass-through insurance lets deposits placed at a bank by a third party on behalf of a depositor be insured as if deposited directly by the end customer, Hill explained. If payment stablecoins qualified for that protection, the FDIC would insure the deposit account based on the interest of the stablecoin holders in a situation in which the bank holding the account failed, he added. 

In his remarks, Hill suggested that the FDIC would like to determine the proper regulations for payment stablecoins not subject to the Genius Act sooner rather than later. For now, the extent to which stablecoins would qualify for pass-through insurance remains unclear, Hill said. 

“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 during the summit.

To supplement the Genius Act, Congress is also considering a proposal for the Clarity Act, which would provide guidance as to what roles regulatory agencies will be expected to play in overseeing the use of stablecoins.