Deposit Insurance Off-Limits for Payment Stablecoins, FDIC Says

Payment stablecoin holders won’t be eligible for federal deposit insurance even if their assets are held at insured banks, the federal regulator charged with overseeing the bank backstop said.

The Federal Deposit Insurance Corp. is drafting a proposal to specify that payment stablecoins don’t qualify for pass-through deposit insurance that other financial technology companies can offer to customers, FDIC Chairman Travis Hill said in a Wednesday speech for an American Bankers Association event.

The proposal would also bar stablecoin issuers from advertising that the digital currencies pegged to fiat assets, such as the US dollar, are covered by pass-through deposit insurance, 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,” he said, according to prepared remarks.

The “GENIUS Act” (Public Law 119-27)—stablecoin legislation signed by President Donald Trump last year—didn’t state that the digital tokens are ineligible specifically for pass-through insurance, which protects customers of fintechs and other third-party financial services providers. Those companies can deposit customer funds at insured banks and the accounts are considered covered by the FDIC.

But the law did make clear that payment stablecoins aren’t covered by the FDIC’s insurance fund and it prohibits stablecoin operators from advertising that the backstop is available, Hill told the gathering of bankers in Washington.

“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,” he said.

Hill didn’t provide a timeline for the proposal.

The FDIC in December issued a proposal spelling out how the banks it oversees can issue payment stablecoins under the GENIUS Act. The agency would assess the ability of banks’ stablecoin-issuing subsidiaries to meet monthly reserve requirements and disclose the composition of reserves on its website.

The 2025 law requires stablecoin issuers to formally register and hold dollar-for-dollar reserves.

Another regulator, the Office of the Comptroller of the Currency, unveiled a separate proposal last month to implement part of the stablecoin law. The OCC’s plan would restrict companies from issuing branded stablecoins through white-label platforms and offering rewards tied to them—a major point of contention between crypto companies and traditional banks.

Private Investors

The FDIC is also looking to ease nonbank private investors’ ability to buy failed banks, Hill said.

“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,” he said.

The FDIC is working to rescind a 2009 policy statement that set conditions and restrictions on the ability of private investors, such as private equity shops, to purchase or invest in failed banks. The Obama-era policy set capital commitment mandates that were higher than those for banks looking to buy a failed institution and lengthy continuity-of-ownership requirements intended to prevent private investors from quickly flipping a bank, among other restrictions.

Other standard requirements will still be in effect, so allowing private investors to bid on a failed bank won’t increase risk in the system, Hill said.

In addition, the FDIC is working with other regulators to make it easier for nonbank investor groups to set up “shelf charters” to bid on lenders following a sudden failure.

Currently, shelf approvals can take months and require multiple regulators to weigh in on an application. Regulators are working on a proposal to speed the approval process for bank charters, holding companies, and deposit insurance when a crisis hits, Hill said.