Fed Flags Stablecoin Risks as U.S. Senate Prepares for GENIUS Act Vote

Key Takeaways:

• The U.S. Federal Reserve warns that non-bank stablecoin issuers pose risks to financial stability and local bank lending power.
• The Fed urges the inclusion of this asset class in a unified regulatory framework to prevent fragmentation and regulatory arbitrage.
• The upcoming GENIUS Act, a bipartisan U.S. stablecoin bill, may introduce national oversight and standards for all stablecoin issuers.
• Ripple’s RLUSD enters the market with a regulated approach and plans for yield offerings.

U.S Federal Reserve has raised fresh concerns over non-bank stablecoin issuers, warning they could jeopardise systemic stability and called for a unified regulatory response. Fed chair, Jerome Powell, has repeatedly emphasised the urgency of oversight in the fast-evolving digital asset Space. 

In a April 10 discussion, the Federal Reserve’s CDIAC warned that non-bank stablecoins could become modern disruptors of community banking. Drawing parallels to the rise of money market funds decades ago, the committee expressed concerns over a potential drain on deposits and a threat to local banks’ lending power.

Read more: What are stablecoins.

Stablecoin Bill in the U.S. Senate: GENIUS Act

Fearing massive deposit outflows and weaker credit systems, the committee urged non-bank issuers to be brought under regulatory supervision to prevent a new era of financial fragmentation.

This comes as the US Senate prepares to pass a key bipartisan bill as soon as next week. Dubbed as the Guiding and Establishing National Innovation for US Stablecoins Act, or GENIUS Act, is expected to be passed by May 26 — Memorial Day in the US. As per democratic Senator Kirsten Gillibrand, “people will see really good refinement, a lot of progress, on things like consumer protection, and bankruptcy protection, and ethics,” she said. “Things beyond just ‘what’s the structure?’ and ‘what’s required for an issuer?”

Ripple Stablecoin RLUSD Enters the Race

Ripple, the firm known for its XRP token, is advancing in this sector with RLUSD, a fully supported and regulated stablecoin. Jack McDonald, Ripple’s Senior Vice President , recently noted that yield-generating stablecoins are poised to become the next major trend, although regulatory frameworks have yet to catch up. The blockchain firm aims to offer yields on this asset class but faces the challenge of registering RLUSD as a security in the United States.

Read More: Bitcoin Price Forecast

Will Stablecoin Regulation Restore Financial Balance?

As stablecoins continue to gain traction in usage and importance from DeFi to global payments, regulators are grappling with how to integrate them into the broader financial system. The Fed’s warnings, paired with the GENIUS Act and emerging players like Ripple, show that the stablecoin narrative is entering a new regulatory phase.

Investors, issuers, and institutions alike should keep a close eye on upcoming legislation and how it might define the rules for crypto innovation and compliance in the U.S.