Holders of stablecoins are not protected by the Federal Deposit Insurance Corporation (FDIC). They are simply not protected by the government either through pass-through agreements, the GENIUS Act, or otherwise. This was stated very clearly by Travis Hill (Chairman of the FDIC) at the American Bankers Association summit in Washington on March 11. Therefore, there is no logical reason for the industry to react as strongly as it has to this news since it was anticipated. The GENIUS Act passed into law in July 2025. The legislation mandated that all stablecoins maintain full dollar-for-dollar backing via reserves, outlawed deposit insurance and established a federal regulatory scheme for stablecoins that are payments. It did not address the issue of pass-through insurance. The final issue that supporters of stablecoins had regarding this issue was the lack of consistency on this point. That issue has now been resolved by Mr. Hill's comment that<a href="https://www.coindesk.com/policy/2026/03/11/stablecoins-won-t-get-any-kind-of-deposit-insurance-under-genius-rules-says-fdic-chief" rel="noopener noreferrer" target="_blank"> </a>"Holders of Stablecoins do not have any FDIC Insurance."<h2>What Pass-Through Insurance Actually Is</h2>Many people will avoid asking for further clarification because they don't comprehend what it is they're asking for. Fintech companies use pass-through insurance when they keep customer deposits with an FDIC-insured bank. Essentially, this means that the insurance is passed from the bank to the customer through the intermediary just as if the customer had made a direct deposit into their account; non-bank businesses such as PayPal and various cash management platforms have long touted the presence of FDIC insurance for their customers' funds within these banks. Now, with regard to stablecoin issuers, everyone is relying on the same argument, i.e., stablecoin issuers maintain deposits at banks that are insured by the FDIC and thus the FDIC protections fall to the holders of stablecoins. Hill's position effectively rejects this interpretation of the GENIUS Act; he believes that when Congress states that it is illegal to market stablecoins as being backed by the U.S. Government, then you cannot validate using pass-through insurance to build a de facto perception of having government backing of stablecoins; you cannot have pass-through insurance if Congress shuts the front door. Although the GENIUS Act does not explicitly mention pass-through transactions, Hill came to the conclusion that the prohibition would be applicable and<a href="https://www.americanbanker.com/news/fdics-hill-stablecoins-ineligible-for-pass-through-insurance" rel="noopener noreferrer" target="_blank"> </a>requested that the FDIC establish regulations to govern pass-through transactions prior to a failure of a stablecoin reserve bank and all of the affected parties arriving with different expectations with respect to coverage.While stablecoins may not be viewed as risky by most, the fact that there will be so much uncertainty at the time of the insolvency creates an extremely dangerous situation. <h2>The Banks Are Not Being Subtle</h2> The American Bankers Association (ABA) was present at the recent summit because the banking sector has historically lobbied against stablecoins acquiring characteristics of traditional deposits. The ABA believes that, because stablecoins will provide yield, portability, and, finally, a credible measure of government insurance, they could potentially replace deposits in banks, providing an alternative to banks to obtain deposits and access to liquidity. This distinction is critical because community banks do not have access to loans against reserves that they do not possess, and the loans made by a bank come from deposits. This week,<a href="https://coinmarketcap.com/academy/article/fdic-rules-out-stablecoin-deposit-insurance-under-genius-act-chairman-says" rel="noopener noreferrer" target="_blank"> </a>Jefferies released estimates that indicate that the traditional banking industry could see a loss of between 3% and 5% of core deposits over the next five years due to the growth of stablecoins. This is a substantial amount of core deposits that could cause a reduction in the bank's ability to originate small business loans where other banks do not compete, increase cost of capital, and reduce net interest margin on their loan portfolio. The ABA's No. 1 priority for 2026 is to prevent stablecoins from being treated as substitutes for deposits. They did receive responses to their appeal to Congress regarding the treatment of stablecoins from regulatory officials. One change to existing regulations would revise the insurance requirement to eliminate the last remaining justification for treating stablecoins as deposit equivalents, even though stablecoins continue to be legal to use, are increasing in volume, and are being<a href="https://www.pymnts.com/news/regulation/2026/fdic-plans-to-block-stablecoins-from-pass-through-insurance/" rel="noopener noreferrer" target="_blank"> </a>processed in excess of $1 trillion each month.<h2>Tokenized Deposits Are a Different Story</h2> The fact that Hill arrived at a decision is critical. Tokenized deposits cannot be thought of as stablecoins. There is a difference between a tokenized deposit and a bank account, which is created with programmable tokens on a blockchain and represents an FDIC deposit that is unique from bank deposits. The FDIC's future proposal regarding tokenized deposits is to require banks to recognize that there is a clear legal basis under current law for any person or entity to qualify for insurance coverage for any tokenized deposit that can use any technology to create tokenized deposits. The distinction here is not just an issue with technology, but it is an important distinction at a structural level. A tokenized deposit remains within the banking system, where there is a bank that is the issuer, the bank has ultimate liability on its balance sheet for the tokenized deposit, and the bank is subject to capital regulations and supervision. The other way to create a payment stablecoin is outside the banking system, where there is no bank that is the issuer of the payment stablecoin. The issuer of the stablecoin is not a bank, however, the issuer has reserves. The tokenized deposit does not create a relationship between the bank and the depositor, therefore, there is no circulation of insurance for a depositor. The largest US banks have conducted trials of using a type of tokenized deposit program through JPMorgan, Citi, and Wells Fargo who would not have acted on tokenized deposits unless they were confident that their therapy would work and that<a href="https://bankingjournal.aba.com/2026/03/fdics-hill-outlines-policy-proposals-on-stablecoin-insurance-bank-failures/" rel="noopener noreferrer" target="_blank"> </a>Hill confirmed in his testimony that their therapy worked.<h2>What Stablecoin Holders Are Left With</h2>Complete reserves. That's all.Payment stablecoin issuers are required by the GENIUS Act to maintain<a href="https://www.congress.gov/bill/119th-congress/senate-bill/1582" rel="noopener noreferrer" target="_blank"> </a>dollar-for-dollar reserves in premium liquid assets. No reserve that is fractional. No backup is given out. Holders are safeguarded by the balance sheet rather than the federal government if Circle has $100 in reserves for every $100 in USDC in circulation. The issuer's identity, the structure of the reserves, and the speed at which a run occurs will all determine whether or not that is sufficient.When that question is addressed, the FDIC won't be present.

FDIC Chair confirms stablecoins lack government deposit insurance under the GENIUS Act; holders rely solely on issuers’ full-dollar reserves, not federal protection.

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