Federal Deposit Insurance Corporation (FDIC) Chair Travis Hill said the regulator is proposing a ban on pass through insurance for stablecoin reserves held at FDIC insured banks, and is inviting comments on the proposal.
The GENIUS Act explicitly bans deposit insurance for stablecoins themselves. But there are two separate things here. There is the stablecoin, and then there is a deposit account holding reserves. Hill highlighted that the GENIUS Act is clear about the stablecoin itself, but doesn’t discuss the deposit accounts used for reserves. Which raises the question: if the bank fails, would one look through and consider the stablecoin holder as the deposit holder. Hill believes the FDIC should not.
Part of the reason is the clear intent not to provide insurance in the GENIUS Act. But there’s also a practical aspect. FDIC insurance, when invoked, is usually based on a list of depositors. How on earth would that work for stablecoins? The names of token holders and holding amounts would need to be identifiable. Explicitly saying pass through insurance does not apply avoids the issue.
But there is an important distinction here. What is being banned is pass through for stablecoin holders, not stablecoin issuers.
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