FDIC Just Showed Why Banks May Win the Digital Dollar Race

The debate over stablecoin regulation has always had a deeper question underneath it.

Do blockchain-based payment systems become an extension of the banking sector or remain permanently adjacent to it?

The Federal Deposit Insurance Corp.’s proposed GENIUS Act framework may not answer that question, but it is starting to draw the lines.

The comment period for the FDIC’s proposed implementation of the GENIUS Act closed Tuesday (June 9) after drawing hundreds of pages of responses from banks, FinTechs, industry groups and other stakeholders. The central dispute is whether stablecoin reserves are fundamentally different from other custodial deposits and who bears the consequences if they are not.

The FDIC’s rulemaking will not answer those questions by itself. However, it may establish the framework that determines which institutions are best positioned to answer them.

Read also: Crypto Embraces Regulator-in-the-Loop Strategy as Federal Rules Roll Out

Drawing a Line Between Stablecoins and Bank Money

The GENIUS Act was designed to solve a regulatory challenge that has frustrated policymakers for years. Congress wanted a framework that would permit dollar-backed stablecoins while preventing them from becoming synthetic bank deposits carrying implicit government guarantees.

The FDIC framework establishes reserve, liquidity, custody, redemption and operational standards for FDIC-supervised issuers while clarifying how tokenized deposits fit within the banking system. The framework effectively draws a line between speculative cryptocurrency activity and payment infrastructure. Stablecoin issuers would be limited to a narrow set of activities centered on issuance, redemption, reserve management and custody. They would face strict reserve requirements and limitations on activities that could introduce risk into the system. The message is that stablecoins can become part of the financial mainstream, but only if they start behaving more like utilities than startups.

The proposal would clarify that deposits held as reserves backing stablecoins would be insured as deposits of the stablecoin issuer itself rather than insured on a pass-through basis to individual stablecoin holders. That position has triggered opposition from parts of the banking and payments industries.

In its Tuesday comment letter, Fiserv said the FDIC’s approach breaks with longstanding deposit-insurance principles. A “deposit structure-specific framework” would better align with both the GENIUS Act and existing deposit insurance law than a blanket prohibition on pass-through coverage. If regulators reject that approach, they in effect reinforce a bright-line distinction between traditional bank deposits and privately issued digital dollars.

See also: Why Stablecoins Are a Money Story, Not a Consumer Story

The Bigger Story May Be Tokenized Deposits

While much of the public debate focuses on stablecoins, the more significant long-term development may be the FDIC’s treatment of tokenized deposits. The proposal explicitly distinguishes payment stablecoins from deposits recorded on distributed ledger technology. That distinction may prove critical because it points toward a future in which banks themselves issue blockchain-based versions of traditional deposits, a future that PYMNTS CEO Karen Webster flagged earlier this January in a piece on tokenized deposits.

For years, stablecoins have flourished largely because existing banking infrastructure was not designed for programmable, internet-native payments. Tokenized deposits offer a different model. They are digital money issued directly by regulated banks while retaining the legal and regulatory characteristics of deposits.

On Thursday (June 4), it was reported that JPMorganChase, Bank of America, Citi, Wells Fargo and other major commercial banks plan to launch a tokenized deposit network in the first half of 2027, operated by The Clearing House, the real-time payments company co-owned by the same banks.

Increasingly, the debate is not whether assets should be tokenized but whether regulators will treat tokenization as a technological upgrade or as a fundamentally different category of financial activity.

Read also: Stablecoins Are Just Wildcat Banking With Better Wi-Fi

Why the Banking Industry Wants Regulators to Slow Down

One of the more revealing responses to the proposal came not from crypto companies but from major banking trade associations. In a joint filing, industry groups asked regulators to delay the comment process until the Office of the Comptroller of the Currency finalizes its own GENIUS Act framework. The reason is that the various stablecoin rulemakings are interconnected.

The groups said the pending Treasury, FDIC and anti-money-laundering proposals remain “substantively tethered” to the OCC’s still-unfinished framework. Moving ahead without greater coordination risks creating overlapping or inconsistent standards for institutions operating across multiple regulatory jurisdictions.

If different agencies establish divergent requirements for similar activities, financial institutions will inevitably structure themselves around whichever regulatory framework proves most advantageous. The resulting arbitrage is precisely what lawmakers sought to avoid when creating a federal stablecoin framework in the first place.

See also: A Stablecoin History Lesson: The Messy Origins of the Internet’s ‘Digital Dollar’

The Real Prize Is Control of Payment Infrastructure

The PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption” found that blockchain’s next leap will be shaped by regulation. At stake is the future structure of payments, deposits, settlement infrastructure and the boundary between traditional banking and blockchain networks.

For banks, the proposal represents a defensive challenge and a strategic opportunity. For FinTechs, it signals growing federal acceptance of blockchain-based financial infrastructure. For regulators, it marks the beginning of the more difficult task of incorporating programmable money into the financial system without importing the instability that accompanied earlier crypto markets.

Will the future belong to nonbank stablecoin issuers holding reserves inside the banking system? Will banks dominate through tokenized deposits? Or will the two models converge into a hybrid structure where the distinctions become increasingly difficult to see?

The real question, after all, is no longer whether digital dollars will exist. They already do. It is who will issue them.