BlockRiver Blog | FDIC Moves to Count Discount Window Capacity as Bank Liquidity: EMIs Face a Widening Structural Gap

The proposal, floated by FDIC Chair Travis Hill at the June 17 New York Banking Summit, would treat discount window borrowing capacity as a partial credit within banks' high-quality liquid asset mix. It wouldn't replace existing HQLA requirements, but would incentivise "readiness to borrow", recognition that, in a true liquidity crisis, the central bank may be the only viable source of funds.

Hill was explicit about why. The Silicon Valley Bank failure showed how fast deposit outflows can outpace a bank's ability to sell securities. "The notion that large institutions that could have hundreds of billions of dollars of securities, and that the institutions are going to be able to liquidate those securities to satisfy deposit outflows in mass quantities is not possible," Hill said. "If that's the world we're talking about, it's very possible that the central bank is really going to be the only viable source of liquidity."

The Federal Reserve's own review of SVB confirmed the scale: the bank faced a run by depositors on March 9, 2023, with deposit outflows over $40 billion on that day alone, and management expected $100 billion more the next day. No securities portfolio could liquidate fast enough.

Treasury Secretary Scott Bessent has already stated that the liquidity coverage ratio should recognise banks' capacity to borrow at the Fed's discount window against prepositioned collateral. The proposal now under discussion at the FDIC aligns with this direction, and cross-agency coordination with the Fed is underway.

This is where the structural asymmetry becomes acute for EMIs. Electronic money institutions cannot take deposits in the traditional sense, nor can they lend customer funds or pay interest on balances derived from electronic money. They also do not have access to central bank liquidity facilities or deposit guarantee schemes. This isn't a regulatory oversight, it's definitional. EMIs are licensed under e-money directives, not banking laws, and their narrow-bank model explicitly excludes them from the central bank safety net.

The practical difference: when a bank faces liquidity stress, it can borrow from the central bank against eligible collateral. When an EMI faces stress, it must rely on safeguarded client funds and whatever commercial banking relationships it has arranged. There is no lender of last resort. Central banks play a crucial role as lenders of last resort, providing liquidity support to solvent banks during periods of stress. But the availability of this support depends on the holdings of acceptable collateral, for a typical commercial bank, runnable liabilities represent 30-50% of total unencumbered assets. EMIs have no seat at this table.

The FDIC proposal would make this gap explicit in regulatory capital calculations. If discount window capacity counts toward liquidity ratios, banks gain regulatory flexibility that EMIs cannot replicate. The playing field tilts further.

But there's a parallel development that changes the calculus: the rapid maturation of regulated stablecoin infrastructure.

The GENIUS Act was enacted on July 18, 2025. It establishes a regulatory framework for payment stablecoin activities. Regulations are required to be issued no later than one year after the statute's enactment, and the Act will take effect on the earlier of 18 months from enactment or 120 days after the date final regulations are issued. The FDIC, OCC, and Federal Reserve are all in active rulemaking.

Treasury's Financial Crimes Enforcement Network and federal banking agencies have now proposed the first stablecoin issuer know-your-customer requirements pursuant to the GENIUS Act, focusing on giving firms risk-based flexibility in their direct customer relationships. Critically, the proposal states that a stablecoin issuer's customer identification program "should address the types of accounts it intends to maintain, how it allows those accounts to be opened, and the types of identifying information available," rather than prescribing a one-size-fits-all approach.

This matters for EMIs because MiCA has already established the framework in Europe. EMT issuance requires an EMI or credit-institution licence under existing EU banking law plus a MiCA white paper notification. Circle became the first global issuer of stablecoins to comply with MiCA, obtaining authorisation as an electronic money institution from the French ACPR. Quantoz Payments, a Dutch EMI supervised by De Nederlandsche Bank, received MiCA authorisation for two stablecoins in late 2024.

The regulatory architecture now exists for EMIs to issue stablecoins, and those stablecoins offer something banks' fiat rails cannot: continuous settlement.

Beyond their implications for deposit-taking and lending, stablecoins may significantly reshape banks' roles in the payments landscape. By offering low-cost, near-instant, 24/7 settlement, stablecoins compete directly with traditional bank payment services, including Real-Time Payments and FedNow, which have historically generated fee income for banks.

Hill himself acknowledged that the FDIC has "been thinking a lot about" tokenisation, noting "a tremendous amount of research" and experimentation among the largest banks, citing potential benefits in liquidity management, collateral management, and faster, more conditional movement of funds. He noted that 24/7/365 markets will require the FDIC to adapt its resolution processes, acknowledgement that the settlement clock is shifting.

For an EMI Head of Product or Chief Innovation Officer, the strategic picture is now clear. Banks are gaining explicit regulatory credit for their access to central bank liquidity, a structural advantage EMIs cannot match through any licensing path. The response is not to compete on that axis. It's to compete on the axis where EMIs can lead: settlement infrastructure.

Mastercard has announced it will expand its global settlement capabilities to support intraday, weekend, and holiday card settlement, using regulated stablecoins to enable 24/7 settlement that traditional banking rails can't support. The card networks are moving. The institutional clients are signalling demand.

The question for EMIs is no longer whether stablecoin rails are relevant to their business. It's whether they can access the infrastructure, the issuance capability, the custody relationships, the compliance frameworks, before their institutional clients begin routing flows elsewhere. Banks are being given regulatory recognition for their central bank backstop. EMIs need to build their competitive position on the rails banks cannot yet operate as natively.

The FDIC proposal clarifies the terms of competition. It doesn't close the door for EMIs, but it does make the alternative path more urgent.