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GENIUS Act has a sneaky gotcha for 'traditional' banking clients

rforno
edited June 5 in Other Investing

https://www.levernews.com/cryptos-new-bailout-fund-your-savings-account/

Crypto’s New Bailout Fund: Your Savings Account

The GENIUS Act would require banks to prioritize stablecoin owners over customers if there’s a financial collapse.

Included in the legislation is a provision declaring that if a bank goes bankrupt or becomes insolvent, “the claim of a person holding payment stablecoins issued by the payment stablecoin issuer shall have priority over all other claims against the payment stablecoin issuer.”

According to Georgetown Law professor Adam Levitin, who specializes in financial regulation, this essentially means that “if a bank custodian for a stablecoin issuer’s reserves ends up insolvent, the claims of the stablecoin investors will come ahead of the bank depositors.”

So if a financial institution goes out of business, it will be legally obligated to first make stablecoin depositors whole, even if it means using what remains of other customers’ money.

< - >

The Genius Act also stipulates that even non-depository financial institutions that operate like banks, such as highly volatile money market funds, will have to prioritize stablecoin holders over other customers.

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For a more thorough analysis, check this out from a white-shoe DC law firm:
https://www.arnoldporter.com/en/perspectives/advisories/2025/06/incoming-stablecoin-legislation-stable-and-genius-acts

... I guess that's one way to get people to buy into cryptocurrency, eh?

Comments

  • WABACWABAC
    Geez. I'm going to have to go back and read about wildcat banking in the 19th century, because this scheme sure rings a bell.

    I couldn't tell from the link what happens to FDIC insured accounts. Due to my ignorance I can only take a WAG that this would have more impact on, e.g., people holding a bank loan fund like FFRHX, or anyone holding bonds from a stablecoin issuer.

    Thanks for the link. Interesting stuff.
  • CrashCrash
    Jayzuz H. you-know-who. Repugnant Party once more surprises... nobody. AGAIN. Filthy slimeball subterfuge.
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