FDIC Blocks Stablecoin Insurance Loophole, Citing Banking Sector Concerns
The Federal Deposit Insurance Corporation (FDIC) plans to introduce a rule that explicitly bars stablecoin holders from receiving 'pass-through' insurance. The proposed rule, announced by FDIC Chairman Travis Hill at an American Bankers Association summit in Washington, would close a potential loophole in the GENIUS Act.
The GENIUS Act already prohibits direct FDIC coverage for stablecoins, such as Circle's USDC and Tether's USDT, which are distinguished from bank deposits that carry up to $250,000 in federal guarantees. Hill stated that the pass-through prohibition aligns with the intent of the statute, even though it does not explicitly address the arrangement.
The FDIC's preliminary view is also that tokenized deposits - bank deposits represented as programmable blockchain tokens - should receive the same insurance treatment as conventional deposits.
This development comes amidst growing concern over stablecoin competition in the banking sector. A recent Jefferies report estimated that stablecoin growth could generate 3% to 5% core deposit runoff at U.S. banks over five years, cutting average bank earnings by roughly 3%. Banks have argued that allowing yield on stablecoins would pull depositors away.