Travis Hill, FDIC Chair, outlines the agency's regulatory strategy for banking and cryptocurrency at a Washington summit. He prioritizes the GENIUS Act, proposing prudential frameworks for bank subsidiaries issuing stablecoins while clarifying that tokenized deposits retain their legal insurance status under the FDI Act. Hill rejects pass-through insurance for stablecoin reserves to prevent misleading marketing and rescinds prior blockchain guidance to foster innovation, provided privacy and KYC risks are managed. Ultimately, his approach balances strict prudential oversight with open dialogue, signaling a cautious yet adaptive federal stance on digital asset integration. [Automatically generated summary]
For 47 years, since March 19, 1979, C-SPAN has made that possible.
No commentary, no spin, no government funding, just democracy unfiltered.
As we celebrate our Founders Day, join viewers like you who are helping C-SPAN carry this mission forward.
Visit c-span.org/slash donate or scan the QR code, make your contribution today.
Preserve the legacy, power the present, shape the future.
Support C-SPAN with a Founders Day gift.
Travis Hill is chair of the Federal Deposit Insurance Corporation.
He discussed banking and cryptocurrency at a recent digital assets summit in Washington, D.C. Here's a look.
Okay, well, you have reached the time in this programming where we turn to financial regulation, which I think is extremely important right now.
And so, not everybody in the audience is probably familiar with what the FDIC does.
So, why don't you give us like 15 seconds on the role of the FDIC in the U.S. financial regulatory apparatus?
Sure, sure.
Happy to, and great to be here.
So, the primary functions of the FDIC first is we insure deposits.
So, deposits in FDIC insured banks are generally insured up to $250,000 per depositor per institution.
Secondly, we examine banks for safety and soundness and compliance with laws and regulations.
And so, the FDIC is the primary federal supervisor for the majority of community banks in America.
And then, third, we are the resolution authority.
So, if banks fail, the FDIC takes over the bank, resolves it, and we have a number of powers under the FDI Act to resolve failed institutions.
Yeah, yeah, okay.
And you've been doing a lot of work recently in terms of like kind of moving forward to implement the Genius Act, which was passed last July.
You've proposed some rules for issuers to apply for a license.
There's been a, you know, we all know the OCC put out its notice of proposed rulemaking.
So, but what's next for the FDIC?
Like, what do you see on the horizon in terms of rulemaking, priorities around the Genius Act?
You know, can you talk to us a little bit about that?
Sure.
So, implementation of the Genius Act is a big priority for us and something we've been spending a lot of time on.
As you noted, we did issue the first part of our proposal back in December, which set out the standards for applicants of essentially FDIC supervised banks that want to set up a stablecoin issuer.
We are now working very hard on our bigger proposal that will establish the prudential framework for FDIC-supervised payment stablecoin issuers.
We waited to let the OCC go first, given that the OCC is going to be supervising the non-bank stablecoin issuers.
Our universe is smaller because it's basically going to be the subsidiaries of FDIC supervised banks.
But we have been working very hard on that and are pretty close to being ready to issue it.
That's been something that has been, as I said, a big priority.
We have looked very closely at the OCC's proposal.
We've had a lot of engagement with them.
I think we're going to try to align a lot of the provisions in our proposal with theirs, given the value and having consistency.
But at the same time, also recognizing that our universe is a little bit different, and there may be some reasons for some deviations here and there.
And then there are some other pieces of the proposal we're going to issue that will be broader than the sort of prudential requirements that come out of the Genius Act.
But as I said, I think from a process standpoint, we're pretty close and expect to be ready to issue that pretty soon.
Yeah, okay, great.
I want to take a quick detour to talk a little bit about process because I think the rulemaking process is something that's a little bit new to the crypto industry in general, right?
And I'm going to ignore the previous unhosted wallet rule that had a flash in the pan.
But I'd love to just talk a little bit about your experience and how we should be thinking about engaging in the rulemaking process.
I think it's a little bit new for us as an industry.
When you think about putting out a notice, what are the things that, as an agency head, that are helpful for you to get back in terms of comments?
You know, as we were taking a look through proposals, thinking about how do you provide the right level of information for the agency to finalize a rule and get the details right?
Because at the end of the day, we're going to have to live and die by rules.
We don't want this left up to discretion.
So can you talk a little bit about how you think about the process, the engagement, and the kind of information that's helpful for an agency head to get back?
Sure.
Well, I think on these proposals, the agencies are very interested in getting robust feedback.
The OCC's proposal had a lot of questions in it.
Our proposal that we're planning to issue is also going to have a lot of questions in it.
And I think that is partly intended to demonstrate that there is a desire to get a lot of feedback on it.
I think engaging in the comment process is very useful.
Under the Administrative Procedures Act, the agencies are required to be responsive to all the comments.
That's something that courts have required of the agencies.
So again, I think participating in the comment process is very useful.
I think also just engaging with the agency through various channels can also be useful for FDIC supervised banks, engaging with exam teams, regional office, et cetera.
For institutions that are not FDIC supervised, we do have people on staff who basically work on these issues full-time.
And so, you know, to the extent that there are people that are kind of building infrastructure for tokenization and things like that, we have had a lot of very good engagement.
And from our perspective, the more dialogue there is, the more engagement there is, the better informed our rules are going to be.
So again, I think engagement and dialogue is critically important.
Yeah, yeah, absolutely.
So let's talk a little bit about some of the things that you talked about about a week ago when you made a speech.
Let's dive into some of the things that might be in that proposal.
And you mentioned tokenized deposits, right?
And so that's something that I think has been on everybody's radar.
And the FDIC is uniquely situated to be a thought leader in this space.
And I know that a lot of the banks that you have under your supervision are keenly aware and engaged in thinking through the future of tokenized deposits.
Can you share a little bit more about what the issues that the FDIC is going to be thinking about when they're considering a rule for rules around tokenized deposits?
Yeah, sure.
So tokenized deposits is something that I and people at the agency have been following for a number of years now.
Some of the largest institutions have been investing heavily in different tokenized deposit products and platforms and things like that.
And so I think from our perspective, There's a lot to think about there.
In the previous administration on tokenized deposits and many other of these issues, there was a little bit of a head-in-the-sand approach where people were just not really engaging.
And so I think we're sort of playing a little bit of catch-up.
I think there's a lot of promise and benefits from tokenized deposits and tokenization more broadly.
Things like being able to settle things immediately, improve collateral management, remove frictions from cross-border payments, the ability to sort of build in conditionality into smart contracts, just to name a few of the many added functionalities that this will bring.
In terms of the rulemaking that we're working on, the actual regulatory change we're looking at is going to be something that's pretty narrow.
And this is really focused on a principle that I've talked about a number of times in the past, which is that the technology or record keeping that is used with respect to a deposit shouldn't change the legal status of something as a deposit.
And so the point being, if something satisfies the definition of a deposit under the FDI Act, moving that on-chain would not remove that legal status.
And I think that's something that most people assume, but that has not been officially clarified.
And I think providing that clarity will just help remove potential barriers to engagement on this type of thing.
And in the event that if there was a failure, there are various reasons why the legal status matters a lot.
So from a rulemaking perspective, again, what we're actually proposing is going to be something that's relatively narrow, but we do ask a number of questions about whether there are other things with respect to tokenized deposits that we should be thinking about that would be helpful to provide additional clarity around.
Yeah, I think it's also in some of the comment letters that come back in a lot of these rules, the agency has an opportunity to really think through the operational nuances that should be considered, maybe not only in a rule, but as you think about how to implement a supervisory activity around it, right?
Yeah, absolutely.
Another thing that you mentioned about a week ago, and I was so happy that you brought this up, is the pass-through insurance status for reserves of stablecoins.
And so this is something that I had always been, I've been curious about, and I was happy to see it mentioned.
And I think it was important to bring that into the public discourse because it's another one of those nuances and details that we haven't really talked about.
So can you shed light a little bit for the audience on your thinking there and how you want to bring that to resolution?
Sure, yeah.
So just as a little bit of background, pass-through, the way pass-through FDIC insurance works is essentially if a third party is depositing funds in an account on behalf of others, if the criteria are met for pass-through, the FDSC will insure the deposits based on the end depositors as opposed to the third-party intermediary.
And so what that means is if you have, say, a broker-dealer, for instance, who has a business that involves sweep accounts, the broker-dealer may go to a bank, open up an account with $10 million in it.
If there's no pass-through insurance or the pass-through insurance criteria are not met, the deposit account is insured for $250,000 based on the corporate broker-dealer.
But if pass-through insurance does apply, then the FDIC would look through the intermediary to the sweep deposit account holders.
And if each of them are all under the $250,000 limit, then potentially the entire $10 million is insured.
So the question that we have been thinking about is how does that work for reserves of a stablecoin issuer that are placed at an FDIC insured bank?
And so in the Genius Act, the statute is very clear that stablecoins themselves are not FDIC insured or subject to deposit insurance or any sort of government guarantees.
And then there's some other very firm language around prohibitions around marketing or representing that stablecoins are FDIC insured.
But it's silent on whether there's eligibility for pass-through insurance.
And so as part of this proposal, we are going to propose that the reserves backing stable coins would not be eligible for pass-through.
And that seems like the better reading of the statute.
Ultimately, the sort of underlying premise behind pass-through insurance is that the third party is basically serving as an access mechanism for the end depositors or end customers to have access to FDIC insured accounts.
And so it seems like the Genius Act sort of firm prohibition on stable coins being subject to deposit insurance seems inconsistent with that notion.
And again, if most pass-through arrangements today, there is marketing around, essentially these are FDIC insured accounts.
If you're prohibited from marketing FDIC insurance, again, it sort of suggests something that's inconsistent with the idea that these are access mechanisms.
So that all being said, though, we are going to ask a lot of questions about it.
This is a proposal.
We're open to other perspectives.
But the other thing is that I did think it was important and valuable to kind of set this in the regulation as opposed to there being uncertainty around it.
And then you have a bank failure and then you've got lots of different parties with different expectations as opposed to let's just be very clear and definitive about it ex ante before we're in a failure or crisis scenario.
Well yeah, I mean I think it's also, I'm happy that you brought it up because it's important to bring into the public discourse now as we're all thinking about rules around reserve management and the operational nuances around reserve management and what that means and making sure that you're not bringing in counterparty risk to that reserve.
And so like as all of this is being finalized, it's important to consider that reading of the statute and making sure that we're all aligned on that.
Banking Risks on Blockchains00:05:24
Okay, I want to pivot a little bit to supervisory strategy.
So the FDIC, you know, one of the biggest things that the FDIC does, right, you have resolution authority, you have deposit insurance, but you're also supervising banks.
And the supervisory, the supervisory strategy of any agency is extremely important in setting the tone for what banks can do, how they interact, how they're able to innovate, the types of activities they're allowed to engage in.
And so how are you thinking about, you spoke last week about some changes in the supervisory strategy.
Can you talk a little bit about how you're thinking about innovation in banks, their ability to incorporate blockchain into their plans, their ability to innovate within the regulatory perimeter, and how that strategy allows some of that to happen in our most important institutions?
Sure, yeah.
So reforming supervision has been one of the big priorities at the FDSC over the past year.
A lot of that is trying to move away from a focus on things like process documentation, things like that, and more focused on material financial risks.
And so there's a lot of different pieces of that.
One piece of that is wanting to be more open-minded towards innovation.
And that manifests in a lot of different ways.
Part of it is allowing experimentation, research, things like that.
Part of it is also just the expertise and mindset of the examination workforce.
So I think at a high level, more open-mindedness towards innovation is important.
The financial system is evolving quickly, and these new technologies have all sorts of promise.
And so we want to make sure that U.S. banks are not left behind as this progress unfolds.
And then from a policy standpoint, there's certainly a lot of things that we've done last year and that we're continuing to work on to try to remove some of the barriers and obstacles, which I'm happy to go into more detail on that.
Yeah, I mean, one of the things that you did last year was kind of officially rescinded the financial institution letter that said that interaction with public blockchains was inconsistent with safe and sound banking practices.
And I remember reading that when it first came out and I was like, because Anchorage Digital, we have the first OCC chartered trust bank, and our whole business is interacting with assets that exist on public blockchains.
So we're like, wait, is our entire business model unsafe and unsound?
Right?
So, I mean, obviously, the answer is no.
And so I think it was really important to come out and say this is not inconsistent with safe and sound banking practices.
So how do you think about, what have you learned?
What has the agency learned over the past couple of years in how to manage that, how to give banks guidance on how to do this in a safe and sound manner?
What made you comfortable to rescind that and kind of open it up a little bit?
Yeah, so that was one of several pieces of guidance that came out during the last administration that was highly problematic and created a lot of barriers and frictions.
I think on public permissionless blockchains in particular, it's something that I've talked about in the past that clearly that was way too restrictive.
There are a lot of benefits to banks being able to build on some of those platforms and engage with assets on some of those platforms from an interoperability standpoint, from an ability to utilize smart contracts and existing token standards and things like that.
From a sort of liquidity and market perspective, I think that ability to be able to interact with these platforms is essential.
At the same time, we do continue to think about what potential risks there could be that are involved, privacy considerations, KYC considerations, things like that.
I have talked in the past about whether there could be some value at some point in having some standards for banks' engagement with public blockchains.
And so that's something we do continue to think about.
Again, whether it's useful to sort of have some clear standards and obviously the goal would be something that has durability over time.
But again, I think those are things that, you know, I think in the immediate term, our focus is really on Genius Act implementation.
But I think those are the types of things that we'll be thinking about over the longer term.
Okay.
In terms of, you know, as we get over this next hurdle with this big, with genius implementation, How do you think about the FDIC and positioning the FDIC to engage in discussions with industry, to evolve supervisory thinking, to evolve policy thinking in this space?
Can you give us a little bit about how you'd like us to engage with you?
Sure.
Well, as I said before, I mean, I think engaging with our rulemaking process as part of the APA process, I think is always critical.
Next Phase of Innovation00:01:44
And so, again, we encourage robust and thoughtful comments in response to the proposals to come.
I think to the extent institutions are FDIC supervised, engaging with their exam teams, regional office, et cetera, is always helpful.
And then from our perspective, as I said, I think trying to be as informed as possible in the rules that we put out.
Again, recognizing these are areas where things are moving very fast.
And so trying to stay on top of everything is always something that we need to remain on our toes.
But again, this all continues to be a big priority and I think there's a lot of promise with a lot that's being built.
Yeah.
Well, Chairman Hill, thank you so much for your leadership on this.
We've never seen a time where the banking regulators are so closely aligned ideologically, as well as with the markets regulators.
So I think that we've really set ourselves up for a great next phase of innovation.
So thank you for your part in that.
Yeah, likewise.
Thanks, everyone.
And more from that same summit in Washington, D.C. We'll hear from lawmakers on digital assets such as Bitcoin, the impact the technology will have on the economy, and plans to deal with the energy costs associated with the industry.