Sean Casten Questions FDIC on Uninsured Deposits and Stablecoin Risks

Concerns Over Uninsured Deposits

• 💡 Uninsured deposits have been identified as a potential vulnerability for banks, particularly in light of recent failures and increased reliance on this funding source.
• 📌 FDIC Acting Chair Travis Hill acknowledged that the FDIC currently lacks the necessary data to fully assess the amount of uninsured deposits above the $250,000 threshold.
• 📈 Conversations have occurred regarding collecting more granular deposit data, but a formal process has not yet been initiated.

Deposit Flight and Systemic Risk

• ⚠️ A recent paper from the New York Fed suggests that deposits are becoming more volatile, especially in response to rising interest rates.
• 🔍 Wealth management clients are reportedly more likely to withdraw deposits to pursue higher yields when interest rates increase.
• 📊 The Fed is monitoring financial stability and the transit of funding throughout the system, but specific data on where these funds move (e.g., to alternative investment vehicles) is not collected.

Stablecoins and Deposit Outflows

• 💰 A Treasury Department report estimates that stablecoin adoption could lead to over $6 trillion in deposit outflows.
• ❓ There is uncertainty about the exact impact of deposit flows into stablecoins on the broader financial system, with current estimates considered speculative.
• ⚖️ A proposed language in the Genius Act suggests that claims related to payment stablecoins could have priority over other claims in a bank run scenario, raising concerns about how this would be interpreted and managed by the FDIC.
• 🧐 The FDIC has not yet made an effort to interpret this specific language regarding stablecoin claims.