- FDIC chief Travis Hill says stablecoins under the GENIUS Act will not qualify for deposit or pass-through insurance
- Stablecoins must remain fully reserved, while tokenized bank deposits are likely to receive the same insurance treatment as traditional deposits
The fdic chief has clarified that users of U.S. dollar-pegged stablecoins will not receive federal deposit insurance protection under the new U.S. law governing these tokens. Speaking as markets and banking regulators move to implement the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, Federal Deposit Insurance Corp. Chairman Travis Hill outlined how the agency intends to apply the statute’s limits on coverage, including for so-called “pass-through” insurance structures.
FDIC chief outlines limits on stablecoin insurance
Hill said the FDIC is preparing a proposal that would declare payment stablecoins subject to the GENIUS Act ineligible for pass-through insurance, in which financial firms secure FDIC coverage on behalf of their customers. He noted that the law does not explicitly bar these arrangements, but he argued that excluding stablecoins from such protections aligns with the statute’s purpose of drawing a clear line between these tokens and traditional bank deposits.
Under existing rules, U.S. bank deposits are insured by the FDIC up to $250,000 per depositor, per insured institution. By comparison, major stablecoins such as Circle’s USDC and Tether’s USDT are designed to mirror the value of a U.S. dollar but will not fall under that safety net once the GENIUS framework is in place. Hill pointed out that even if they were technically eligible, it is unclear how many stablecoin setups could meet current pass-through standards, which require that the identities and interests of end-customers be regularly knowable. He said this level of transparency is “not a common feature” of large-scale stablecoin arrangements today.
Although the government guarantee will not apply, the GENIUS Act requires that payment stablecoins be fully backed by reserves. According to Hill, that structure means users would instead rely on the issuers’ own balance sheets and risk controls rather than on an FDIC guarantee if problems arise.
Banking industry concerns and legislative tensions
Regulators’ treatment of stablecoins has become a central issue for the banking sector, which has already clashed with the crypto industry over separate legislation, the Digital Asset Market Clarity Act. Progress on that bill has stalled amid disagreements about whether stablecoins should be allowed to generate yield for holders, a feature bankers argue could blur the line with interest-bearing deposits and damage core funding relationships.
Banks contend that if customers can earn returns on stablecoins, they may move money away from insured accounts, undermining the deposit base that supports lending and other traditional activities. Analysts at Jefferies recently estimated that continued growth in stablecoins could result in 3% to 5% core deposit runoff for banks over the next five years, a shift that could pressure profitability.
The White House’s crypto adviser, Patrick Witt, has publicly pushed back against those objections. In posts on X, he has argued that critics are using concerns over competition to obstruct a bill he describes as important for digital asset regulation. In a message on Tuesday night, he insisted that the CLARITY Act should remain focused on fostering innovation and accused opponents of trying to reshape it into legislation that restricts competition.
Addressing worries that higher returns on stablecoins could drain money from banks, Hill said that a customer who shifts funds from a bank account into a stablecoin does not necessarily remove those funds from the overall banking system. However, he acknowledged that such moves could change how deposits are distributed and alter the character of funding across institutions.
Tokenized deposits and regulatory treatment
Beyond stablecoins, the fdic chief said the agency is examining how to treat tokenized deposits, a topic not directly covered by the GENIUS Act. These instruments represent conventional bank deposits in the form of tokens on a blockchain, enabling programmable transfers while still tied to a bank balance.
Hill signaled that the FDIC is inclined to view these tokenized instruments as standard deposits under existing law, regardless of the underlying technology or method of recordkeeping. On that basis, he suggested tokenized deposits should qualify for the same regulatory framework and deposit insurance treatment as their non-tokenized counterparts, reinforcing that the presence of blockchain infrastructure alone does not remove them from the traditional deposit category.
Conclusion
Hill’s remarks underscore that, under the GENIUS Act, stablecoin users will depend on issuer-backed reserves rather than federal guarantees that protect bank deposits, while tokenized deposits are likely to be folded into the existing insured-deposit regime. The FDIC chief’s stance highlights regulators’ efforts to separate payment stablecoins from insured banking products even as lawmakers and industry participants continue to debate how digital-asset innovation should intersect with the traditional financial system.
Disclaimer
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