Deposit flows and banking worries mount as the FDIC’s GENIUS Act comment period closes
The Federal Deposit Insurance Corporation (FDIC) has received final feedback on its proposed GENIUS Act rule as the June 9 deadline arrives.
The proposal creates new standards for companies that issue stablecoins, covering how they must store their money, how users can trade tokens back for cash and how banks manage digital versions of deposits.
A common talking point in the feedback was the FDIC’s choice not to offer “pass‑through” insurance to people who own stablecoins.
Under the proposal, a stablecoin issuer’s reserve deposits at a bank would be insured up to $250,000 as a corporate account, the same way any business deposit is treated. However, the FDIC says stablecoin holders would not receive pass‑through coverage.
This means that if the bank holding the reserves failed, stablecoin holders would have no direct FDIC claim, relying instead on the issuer’s ability to redeem tokens from whatever assets remain.
The FDIC argues this is consistent with deposit‑insurance principles, where insurance follows the depositor of record. However, critics like Daniel Wheeler from FISC Ventures say this creates an unfair gap between traditional bank accounts and new digital payment tools.
His comment stated that “a new class of dollar‑denominated payment instrument is institutionalised that resembles deposit money in operational use but lacks deposit‑insurance pass‑through coverage, depositor‑preference priority under 12 U.S.C. 1821(d)(11), or any equivalent backstop.”
Wheeler said this could make daily payments more risky for regular people, as while banks still hold the money, the safety net is missing. He argued that this goes against the goal of making stablecoins safer by bringing them into the regulated banking world.
Concerns from community banks
A separate set of concerns came from community banks, which focused less on the mechanics of deposit insurance and more on how the GENIUS Act could impact local lending and consumer protection.
Capitol Federal, a $10bn federal savings association based in Kansas, said the proposal risks pulling money out of community banks and into stablecoins because of the incentives in the stablecoin ecosystem.
The bank said that any form of compensation paid to stablecoin users, whether interest, rewards, cashback or token incentives, would encourage people to hold funds in stablecoins rather than in traditional accounts.
Capitol Federal noted that this goes against Congress’s intent to keep customer funds inside the banking system, where they support mortgage, business and agricultural lending.
However, the opposing view on this opinion has already been given. In March, Faryar Shirzad, Chief Policy Officer at Coinbase, argued that banning stablecoin rewards would drive issuers offshore and weaken the US position in the global race.
The bank also questioned whether stablecoin reserve deposits would ever reach community banks at all. Even if issuers keep some reserves in the banking system, Capitol Federal said those deposits are “highly unlikely” to be placed with smaller institutions.
Capitol Federal also raised a separate set of concerns around consumer protection, arguing that the rules create an uneven playing field.
Banks must comply with strict requirements under Regulation E, UDAAP rules and the Gramm‑Leach‑Bliley Act, but the proposed stablecoin framework does not apply the same standards to issuers.
The bank said this could leave customers exposed in cases of fraud, errors or unauthorised transfers and urged the FDIC to extend these protections to stablecoin transactions.
Blockchain tools for real‑time oversight
Not all the comments focused on potential risks. One submission from Chainalysis highlighted the opportunity the new rule creates for more modern forms of supervision.
Jordan Wain, who has previously worked at the UK’s Financial Conduct Authority, said the GENIUS Act allows regulators to use the transparency built into blockchain systems, where stablecoin reserves and token movements are recorded on public ledgers. This means supervisors can verify reserve levels, redemption patterns and custody arrangements in real time.
He argued that this capability could complement monthly disclosures and reduce the risk of undetected reserve shortfalls between reporting periods.
With the comment window now closed, the FDIC will review the submissions and decide whether to adjust the final rule. Any changes are expected later this year.
