Comments on the implementation of the GENIUS Act

October 3, 2025

Department of the Treasury
Office of the General Counsel
Washington, DC

Re.: GENIUS Act Implementation Comments

Dear Sirs and Mesdames:

We respectfully submit the following comments on implementation of the GENIUS Act.  Our comments in particular concern the serious financial stability risks introduced by the act's including uninsured deposits in domestic and foreign banks to the definition of allowable reserves for payment stablecoins. This distinctly higher risk could be reduced by appropriate regulations, although we do not believe it can be eliminated given the language of the act. We suggest that significant regulatory focus on this issue is required.

Specifically, we are greatly concerned with the provisions of the GENIUS Act Section 4(a)(1)(A)(ii).

Uninsured deposits in domestic and foreign banks are an entirely different class of risk than are short-term Treasury bills and other government-guaranteed investments.  They introduce much more individual firm and systemic risk than do Treasury bills. We have seen no public discussion which addresses these risks.

In general, discussions of the GENIUS Act claim that it creates virtually risk-free backing for stablecoins.  Because it includes uninsured deposits, however, such claims are incorrect. In fact, the Act ties stablecoin risk to banking risk, which the financial system has unfortunately so often experienced.  More than 3,000 insured depositories failed over the last half-century.  Many more would have failed except for federal support and bailouts of various kinds, including those of 2008-09, 2020 and 2023.

Banking risk has already demonstrated its power to become stablecoin solvency risk.  In 2023, "Circle's USD Coin lost its dollar peg and fell to a record low [as] the company revealed it has nearly 8% of its $40 billion in reserves tied up at the collapsed lender Silicon Valley Bank.  USDC is designed to trade at $1, but it fell below 87 cents."  ["Stablecoin USDC breaks dollar peg after firm reveals it has $3.3 billion in SVP exposure," CNBC cnbc.com March 11, 2023]  The stablecoin was only saved by a federal bailout of wealthy uninsured depositors like Circle.  At the same time, financial regulators also feared  the risk of runs by uninsured depositors on many banks.  

This same  problem could clearly happen again under the GENIUS Act.  Although it has been virtually never mentioned in the GENIUS Act announcements and discussion, the act allows uninsured, unsecured bank deposits in domestic and foreign banks as an investment for stablecoin reserves. [ Section 4(a)(1)(A)(ii). P.L. 119-27 (2025)]  These deposits are inherently risky.  Merely because money is deposited in a federally insured financial institution does not mean that all or even most of the money is insured, of course. For large deposits, it is rather the opposite. Federal law imposes a $250,000 ceiling amount for insured deposits in domestic banks.  Uninsured deposits are at risk and their holders become general creditors of the failed estate in a bank receivership. 

If the bank or banks where a stablecoin issuer keeps deposits were to fail, amounts above the insured ceiling would suffer losses unless the government bailed them out. In the Silicon Valley bank failure, Circle kept $3.3 billion of its reserves with Silicon Valley Bank, all but $250,000 of which would have had large losses imposed without the bailout. 

Moreover, the GENIUS Act increases risk by permitting reserves to be held in uninsured deposits at foreign banks if they are correspondents of U.S. banks, potentially including, for example, banks in the Bahamas or Cyprus or the British Virgin Islands.  We have seen no public discussion of the role of foreign bank risk in the GENIUS Act.

The role of uninsured deposits in the GENIUS Act sharply contrasts with the administration's focus on how stablecoin reserves could be short-term Treasury bills or their equivalents. Many view the act as a way of ensuring a continued strong market for U.S. Treasury debt, which is essential to maintaining the dollar as the world's reserve currency, at a time when foreign governments seem to be paring back their holdings of Treasury debt.[M. Mutuma, "Could Stablecoins Dominate Treasuries? GENIUS Act Sets the Stage, Coincentral coincentral.com (May 27, 2025); "Foreigners Dump U.S. Treasuries. Here's Who Did the Most Selling," Barron's https://wwwbarrons.com (March 21, 2025)] The White House statement on the act stresses that the act provides for "strong reserves'" and will, "generate increased demand for U.S. debt," to help ensure "the continued global dominance of the U.S. dollar as the world's reserve currency." [Fact Sheet: President Donald J. Trump Signs GENIUS Act into Law www.whitehouse.gov (July 18, 2025]) Expanding the forms in which reserves can be held from short-term U.S. Treasuries to uninsured deposits in domestic and foreign banks makes this a quite different matter. Because of these uninsured deposits, we believe the law does not require strong reserves, may not greatly increase demand for U.S. debt, and if there is a banking crash, may cause a linked crypto crash and perhaps a taxpayer bailout. 

The GENIUS Act not only permits stablecoin reserves to be held as uninsured deposits but has other provisions that we believe will make it more likely that reserves will be held in that form rather than in the form of Treasury debt, resulting in less demand for Treasury bills than hoped. The law permits a subsidiary of an insured financial institution to issue stablecoins. [ Section 2(23), P.L. 119-27 (2025)]  No provision of law would prevent the subsidiary from holding its reserves in uninsured deposits at its parent bank. This creates a very favorable business model for banks. A bank subsidiary could issue stablecoins, on which the GENIUS Act prohibits paying interest [Section 4(a)(11), P.L. 119-27 (2025)] , and charge a fee for such issuance. The subsidiary could then deposit these funds as reserves in its parent bank in a non-interest- bearing deposit. The bank could then use these funds, which are interest-free money to the bank, to make loans or buy securities of any kind allowed to banks--for making commercial real estate loans, for example. This business model would in almost all circumstances appear to the bank more profitable than merely investing the proceeds in short-term U.S. Treasury bills.  

JPMorgan CEO Jamie Dimon has stated that JP Morgan would be involved in stablecoins. [H. Son, "Jamie Dimon says JP Morgan Chase will get involved in stablecoins as fintech threat looms," cnbc.com (July 15, 2025); "Jamie Dimon Now Says He's a 'Believer in Stablecoin'- And JP Morgan Chase's New Partnership Could Change Everything, " finance.yahoo.com  (Aug.10, 2025)] Citigroup and Bank of America are working actively on issuing stablecoins. ["Some big US banks plan to launch stablecoins expecting crypto-friendly regulations," Reuters, finance.yahoo.com (July16, 2025)]  By issuing stablecoins, banks will have deposits for which they pay no interest to fund their general business of any kind or risk, not just holdings of Treasury bills. 

An even more striking risk may come from crypto entrepreneurs who could set up banks to issue stablecoins though the banks' subsidiaries. We believe that the business model outlined above may be very compelling to stablecoin issuers. This might become analogous to the 1980s when real estate developers were permitted by regulators to control savings and loan associations to fund their developments and other real estate activities, contributing to the failure of the savings and loans.  By permitting reserves to be held in uninsured deposits, we believe the GENIUS Act provides stablecoin issuers with a strong incentive to set up banks to use those reserves to fund riskier activities, rather than choosing to invest in low-yielding short-term Treasury securities.   

Placing these reserves in uninsured bank deposits exposes stablecoin holders to the risks of domestic and foreign bank failures and the taxpayers to the risk of supporting a stablecoin bailout along with a bank bailout. 

Bank regulators might lessen the risk of intertwined stablecoin issuer-bank failures by imposing rigorous regulatory standards on the holding of uninsured deposits.  These might include strict limits on the holdings of uninsured deposits in individual banks and banks with common ownership.  It should in our opinion include the requirement of holding standard risk-based capital against the undoubted risk involved with such deposits.  While Treasury bills have a zero risk-based capital requirement under existing U.S. regulation, uninsured deposits do not--especially deposits in foreign banks.  For domestic insured banks, the general rule is a capital requirement of 1.6% (20% risk weighting X 8%). For foreign banks, the capital requirements range from 1.6% to 12%, depending on the risk of the bank and the country involved.  We recommend that these same capital requirements be applied to all uninsured deposits held by payment stablecoin issuers.

In summary, we believe that the inclusion of uninsured deposits in domestic and foreign banks in the GENIUS Act causes serious individual firm and systemic risk issues, which now require a strong regulatory focus.

Thank you for the opportunity to submit these comments.  

Yours truly,

Alex J. Pollock
Senior Fellow, Mises Institute
Formerly Principal Deputy Director, Office of Financial Research
alexjpollock43@gmail.com

Howard B. Adler
Attorney
Formerly Deputy Assistant Treasury Secretary for FSOC
hadler1951@gmail.com