FDIC Excludes Stablecoins from Pass-Through Insurance: Bank Digital Asset Teams Face a Custody Crossroads
The regulatory ambiguity that let stablecoin settlement roadmaps inch forward has ended. On March 11, FDIC Chairman Travis Hill told the American Bankers Association's Washington Summit that the agency will propose regulations explicitly excluding payment stablecoins from pass-through deposit insurance coverage. The announcement addresses a gap in the GENIUS Act, which became law in July 2025 and established the first comprehensive federal framework for stablecoins, but remained silent on whether pass-through insurance arrangements could apply.
The GENIUS Act makes clear that payment stablecoins are not "subject to deposit insurance" and prohibits issuers from representing that stablecoins are backed by the full faith and credit of the United States. When the FDIC insures deposits on a pass-through basis, it treats end-customers as the depositors. Treating stablecoin holders as 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.
Hill's reasoning extends to the marketing implications: "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." This interpretation closes the door on structures that would have allowed banks to offer stablecoin custody with the same insurance backstop available to fintechs, broker-dealers, and prepaid card networks today.
Pass-through insurance has been a cornerstone of modern deposit distribution. The mechanism allows deposits placed at a bank by a third party on behalf of a depositor to be insured as if deposited directly by the end-customer. Today, a broad range of third parties offer pass-through insurance to customers, including broker-dealers, fintechs, prepaid card networks, and deposit placement networks. Banks building stablecoin settlement products reasonably assumed a similar structure could extend to stablecoin custody, particularly given that stablecoin reserves under the GENIUS Act must be held at insured depository institutions.
That assumption is now explicitly incorrect. Hill stated that the FDIC 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." The agency is pre-emptively resolving a dispute that could otherwise emerge in resolution proceedings, with competing claims between stablecoin holders, issuers, and the Deposit Insurance Fund.
The practical implications vary by where a bank sits in the stablecoin value chain. For banks considering stablecoin issuance through subsidiaries, which the GENIUS Act permits for banks and credit unions, the insurance exclusion reinforces that stablecoins operate under a fundamentally different risk model than deposits. The GENIUS Act requires permitted payment stablecoin issuers to maintain reserves backing outstanding payment stablecoins on at least a one-to-one basis, with reserves limited to specified assets including US dollars, federal reserve notes, funds held at insured depository institutions, certain short-term Treasuries, and money market funds. The protection is structural, not governmental.
For banks holding stablecoin reserves on behalf of issuers, the distinction matters less, those are deposits of the issuer, not pass-through deposits of stablecoin holders. But for banks exploring custodial services for institutional clients holding stablecoins, the insurance question was central to the value proposition. Without pass-through coverage, clients holding stablecoins through a bank custodian bear issuer risk in a way that traditional deposit clients do not.
Hill also acknowledged that existing pass-through insurance requirements would be difficult to satisfy in stablecoin contexts even if eligibility existed. "Current pass-through insurance rules require that the identities and interests of end-customers must be ascertainable in the regular course, which is not a common feature of large stablecoin arrangements today." The recordkeeping infrastructure that enables pass-through coverage for brokerage sweep accounts or prepaid cards does not naturally map onto stablecoin custody.
The regulatory treatment of tokenized deposits provides a useful contrast. In the same proposal, the FDIC plans to clarify that tokenized deposits, which are not subject to the GENIUS Act, should be eligible for the same treatment as non-tokenized deposits. Hill stated that "a financial product that satisfies the statutory definition of a 'deposit' under the Federal Deposit Insurance 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."
This creates a clear fork in the road for banks evaluating digital asset settlement infrastructure. Tokenized deposits carry minimal credit risk as traditional bank liabilities insured by the FDIC. Compared to tokenized deposits, stablecoins' redemption value hinges on the issuers' asset holdings, which can and do fluctuate in value. Tokenized deposits are traditional bank liabilities insured by the FDIC up to the insured amount. Stablecoins are not deposits, thus not covered by deposit insurance even when issued by a bank.
The operational question for digital asset teams becomes: can you build a commercially viable stablecoin custody product without insurance coverage? The answer depends on client sophistication and risk appetite. Institutional clients already accept counterparty risk in stablecoin holdings; the absence of pass-through insurance may not materially change their calculus. Retail-facing products face a harder path, particularly given the marketing prohibition that prevents any suggestion of government backing.
Many of the GENIUS Act's implementing regulations are required to be issued in final form by July 18, 2026, before the statute takes effect. The FDIC's proposal will move through notice-and-comment rulemaking, but the direction is clear. Banks that delayed stablecoin infrastructure decisions pending regulatory clarity now have it, and it points away from the insured custody model that some hoped would emerge.
The build-versus-partner decision has crystallized. Banks can invest in uninsured stablecoin custody infrastructure, accepting the compliance burden and client communication challenges that come with it. Or they can partner with regulated third parties who have already built the operational and legal frameworks to support institutional stablecoin activity. Neither path looks like the one many digital asset teams mapped out eighteen months ago.
What remains is a regulatory environment that treats stablecoins as a distinct asset class, not as a technological variation on deposits, but as something fundamentally different that requires different infrastructure, different risk disclosures, and different client relationships. The FDIC has made its position clear. The question now is how quickly banks can adapt their roadmaps to a reality where stablecoin custody and deposit insurance do not intersect.
