An important piece of legislation in the United States Senate is delayed following yesterday’s cloture vote on the GENIUS Act, which failed 48-49. Due to the Senate filibuster, sixty votes were needed to advance.
The bipartisan GENIUS Act is sponsored by Senate Banking Committee Chairman Tim Scott (R-South Carolina). The bill would establish a regulatory framework for stablecoin, a goal strongly supported by the banking industry. Similar legislation is under consideration in the House, and the President has indicated his backing for the passage of a stablecoin bill.
Since the start of this congress, the Alabama Bankers Association, along with our partners in Washington at the American Bankers Association and the ICBA, has worked collaboratively to provide input to help draft a bill that embraces the innovation stablecoin represents without undermining the banking system or placing consumers at risk. Our message has been clear, urging the sponsors to avoid establishing a framework that disintermediates the banking industry by incentivizing a flow of deposits out of banks and into payment stablecoins.
To date, our industry’s advocacy has resulted in several significant improvements to the GENIUS Act, including:
- Confirmation that payment stablecoins are not eligible for deposit insurance or a government backstop.
- No changes to the current process for entities to apply for Federal Reserve master accounts.
- A prohibition on interest or yield paid by payment stablecoin issuers.
- Technical requirements that payment stablecoin issuers be able to comply with lawful orders to freeze and burn payment stablecoins.
In addition, the bill codifies the repeal of SEC Staff Accounting Bulletin 121, provides a pathway for banks to issue payment stablecoins, acknowledges the authority of banking institutions to issue digital assets representing deposits (i.e., tokenized deposits), utilize distributed ledgers for recordkeeping, and offer custodial services for payment stablecoins and their reserves.
As significant as these achievements are for our industry, further work is needed, as the full Senate is expected to begin considering this bill soon. Several remaining issues of concern ensure our nation enacts a durable regulatory framework that balances the potential for improving a customer’s payment experience with the need to promote financial stability, guard against consumer protection risks, and limit negative economic consequences. This includes strengthening the prohibition on payment stablecoin issuers paying interest or yield, prohibiting non-financial commercial companies from owning or operating a payment stablecoin issuer, and extending BSA obligations and associated supervision to digital asset service providers, like exchanges, where the large majority of payment stablecoin transactions occur.
It remains unclear whether the GENIUS Act will receive the necessary support to advance in its current form, and the House bill encounters similar challenges. The banking industry’s commitment to advocate for final legislation that establishes a strong and sustainable regulatory framework for stablecoins, while preserving the essential role that banks play in intermediating credit and driving our local and national economies, will persist.
