FDIC to Clarify Stablecoin & Tokenized Deposit Insurance Rules

The Federal Deposit Insurance Corporation (FDIC) intends to propose new rules clarifying that payment stablecoins will not qualify for “pass-through” deposit insurance, a move that reflects ongoing regulatory scrutiny of the rapidly evolving digital asset space. FDIC Chairman Travis Hill announced the planned rulemaking Wednesday, March 11, at the American Bankers Association’s Washington Summit. The decision stems from a conflict between the intent of the GENIUS Act – legislation designed to clarify the regulatory status of stablecoins – and the existing framework for FDIC insurance.

Pass-through insurance allows funds deposited at a bank by a third party, on behalf of a customer, to be insured as if deposited directly by the end-customer. This mechanism is frequently used by fintech companies partnering with banks to offer deposit-like services. The FDIC’s proposed rule would effectively prevent stablecoins from utilizing this pathway to federal deposit insurance.

GENIUS Act and the Insurance Question

The GENIUS Act, signed into law last year, explicitly prohibits stablecoin issuers from marketing their tokens as being federally insured. However, the law did not directly address whether pass-through insurance could be applied to stablecoins held by banks. Chairman Hill argued that allowing pass-through insurance would undermine the spirit of the GENIUS Act.

“When the FDIC insures deposits on a pass-through basis, it treats the end-customers as the depositors,” Hill said in his prepared remarks. “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 seeking feedback on this proposed approach, acknowledging that different stakeholders may have varying expectations regarding insurance coverage. Hill emphasized the importance of resolving this ambiguity through formal regulation, rather than waiting for a potential bank failure to force the issue.

Tokenized Deposits: A Different Path

While the FDIC is moving to exclude stablecoins from pass-through insurance, the agency plans a different course for tokenized deposits. These deposits, which are not covered by the GENIUS Act’s restrictions, will be considered equivalent to traditional, non-tokenized deposits for insurance purposes. The FDIC intends to propose that tokenized deposits receive the same regulatory and deposit insurance treatment as their conventional counterparts.

“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 stated.

This distinction highlights a growing regulatory acceptance of blockchain technology as a means of recording and transferring financial assets, provided those assets meet the existing legal definition of a deposit. PYMNTS CEO Karen Webster noted in January that regulators were signaling openness to allowing deposits to operate on blockchain rails while maintaining their established legal and supervisory framework.

Implications for Banks and Fintechs

The FDIC’s proposed rule has significant implications for banks and fintech companies involved in the stablecoin ecosystem. Fintechs that rely on pass-through insurance to offer deposit-like services backed by stablecoins may need to reassess their business models. Banks that have partnered with stablecoin issuers could face increased risk if stablecoin reserves are not adequately protected.

The move also underscores the broader regulatory push to clarify the treatment of digital assets. The SEC and other agencies are actively pursuing enforcement actions and developing new rules to address the risks associated with cryptocurrencies and stablecoins. The FDIC’s action is part of this larger effort to establish a comprehensive regulatory framework for the digital asset space.

Supervisory Reforms and Broader Regulatory Toolkit

Chairman Hill’s remarks at the ABA Washington Summit extended beyond stablecoins, outlining broader reforms to the FDIC’s supervisory and regulatory approach. These reforms aim to bolster economic growth, foster innovation, and enhance stability within the banking sector. Key areas of focus include supervisory reform, regulatory capital, liquidity, and Bank Secrecy Act (BSA) compliance.

The FDIC is actively reforming its supervisory process, issuing a joint proposal with the Office of the Comptroller of the Currency (OCC) to define “unsafe or unsound practices” and “matters requiring attention.” Examiners have been instructed to prioritize material financial risks and regulatory violations, and a review of outstanding supervisory recommendations is underway to ensure consistency with the new approach. The agency is also working on revisions to the CAMELS rating system, a key tool for assessing bank performance.

Refocusing Bank Supervision

These supervisory changes are not intended to represent a loosening of oversight, Hill emphasized. Rather, the goal is to focus supervisory resources on the areas that pose the greatest risk to the financial system. The FDIC is also investing in examiner training and updating examination manuals to reflect the evolving regulatory landscape.

The FDIC’s broader regulatory agenda also includes potential modifications to bank capital, liquidity, and consumer compliance requirements. These changes are intended to modernize the regulatory framework and reduce unnecessary burdens on banks, while maintaining a strong safety and soundness standard.

Next Steps and Regulatory Timeline

The FDIC plans to release its proposed rule regarding stablecoin insurance for public comment in the coming weeks. The agency will then review the feedback received and finalize the rule. The timeline for implementation remains uncertain, but the FDIC is committed to providing clarity and certainty to the banking industry as quickly as possible. The agency also anticipates proposing changes to the CAMELS rating system in the near future, further refining its supervisory approach. The FDIC’s actions signal a proactive approach to regulating the evolving financial landscape, balancing innovation with the need for stability and consumer protection.

The agency is also actively monitoring developments in the digital asset space and will continue to adapt its regulatory framework as needed. The ongoing dialogue between regulators, banks, and fintech companies will be crucial in shaping the future of digital finance.