Coalition Calls for Removal of Uninsured Depository Flaw in GENIUS Act

A broad coalition of state, consumer, and bank groups has joined the Conference of State Bank Supervisors (CSBS) in requesting that Congress strike a provision in the recently passed stablecoin legislation that creates an unlevel playing field for uninsured banks and erodes state authority to supervise these institutions. The coalition, which includes the American Bankers Association, Americans for Financial Reform, and the National Consumer Law Center, argues that Section 16(d) of the GENIUS Act allows uninsured state-chartered banks with a payment stablecoin subsidiary to engage in nationwide money transmission and custody activities, bypassing host state licensing and oversight. This provision weakens vital consumer protections, creates opportunities for regulatory arbitrage, and undermines state sovereignty.

Key Takeaways:

• The GENIUS Act provision in question allows uninsured state-chartered banks with a payment stablecoin subsidiary to engage in nationwide money transmission and custody activities, bypassing host state licensing and oversight.
• A broad coalition of state, consumer, and bank groups, including the CSBS, American Bankers Association, and National Consumer Law Center, has joined to request that Congress strike the provision.
• The provision weakens vital consumer protections and creates opportunities for regulatory arbitrage, which undermines state sovereignty.
• Section 16(d) grants an uninsured state-chartered bank with a payment stablecoin subsidiary broad authority to engage in nationwide money transmission and custody activities.
• The coalition argues that this provision upends the system of state supervision and licensing, creating an unlevel playing field for certain uninsured banks.
• The GENIUS Act contains rules of construction preserving state consumer protection laws, but it does not clearly subject state-chartered uninsured depository institutions to host state laws or establish host state regulators' power to enforce them.
• The coalition strongly encourages Congress to remove Section 16(d) from the GENIUS Act and prevent its further expansion to preserve the foundational safeguards embedded in the dual banking system.

Statistics:

• 79% of all U.S. banks are supervised by state regulators.
• The Nationwide Multistate Licensing System, operated by CSBS, licenses and registers non-depository financial service providers in the mortgage, money services businesses, consumer finance, and debt industries.
• The GENIUS Act contains rules of construction preserving state consumer protection laws.

Sources:

• Conference of State Bank Supervisors (CSBS)
• American Bankers Association
• Americans for Financial Reform
• Independent Community Bankers of America
• Money Transmitter Regulators Association
• National Conference of State Legislatures
• National Consumer Law Center
• The GENIUS Act
• The Responsible Financial Innovation Act of 2025