After a flood of crypto industry campaign cash, the US Senate is poised to pass a financial deregulation bill ensuring that when a bank goes out of business, the savings of cryptocurrency owners would be made whole before those of other bank customers.
During a bank collapse, the language buried deep in the bill could effectively require financial institutions to drain money from regular depositors’ savings and checking accounts and give it to cryptocurrency investors to reduce those investors’ losses.
The Senate legislation, known as the GENIUS Act, aims to establish a light-touch legal framework to allow banking and nonbanking institutions, such as cryptocurrency exchanges and even social media companies, to issue a form of cryptocurrency called stablecoins. The bill comes after pro-crypto interests spent at least $4 million since January lobbying Congress, the White House, and regulators on the bill and other matters, disclosures show.
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.
“Congress is about to put the claims of stablecoin investors…
Auteur: Luke Goldstein
