FDIC Plans to Block Stablecoins From Pass-Through Insurance

FDIC Chairman Travis Hill said this on Wednesday (March 11) in a speech delivered at the American Bankers Association’s Washington Summit.

With pass-through insurance, deposits placed at a bank by a third party on behalf of a depositor are insured as if they were deposited directly by the end-customer, Hill said.

The GENIUS Act says payment stablecoins are not subject to deposit insurance or guaranteed by the U.S. government and that stablecoin issuers and other parties are prohibited from representing that the tokens are guaranteed by the government, Hill said.

However, the law does not say whether FDIC pass-through insurance could apply to payment stablecoins, he added.

The FDIC plans to propose that the tokens are not eligible for that insurance, Hill said.

“When the FDIC insures deposits on a pass-through basis, it treats the end-customers as the depositors,” Hill said. “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.”

The FDIC is open to hearing different perspectives on this issue, 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.

The FDIC also plans to propose that tokenized deposits, which are not subject to the GENIUS Act, be eligible for the same treatment as non-tokenized deposits, Hill said. He added that the regulator plans to seek comment on whether any additional clarifications are needed.

“It seems clear that a financial product that satisfies the statutory definition of a ‘deposit’ under the Federal Deposit Insurance Act (FDI Act) remains a deposit regardless of the technology or recordkeeping utilized, and thus tokenized deposits should be eligible for the same regulatory and deposit insurance treatment as non-tokenized deposits,” Hill said.

PYMNTS CEO Karen Webster wrote in January that bank regulators, and particularly the FDIC, were opening the door for deposits to live on blockchain rails while retaining their existing legal and supervisory treatment.