Senate Passes GENIUS Act; State Regulators Warn Of Banking Risks

HomeNews* The U.S. Senate passed the GENIUS Act for stablecoin regulation, but differences with the House’s STABLE Act must be resolved.

• State banking regulators oppose a provision in the GENIUS Act that would let state banks operate nationwide without approval from host states or federal regulators.
• The Conference of State Bank Supervisors and National Conference of State Legislatures have voiced strong concerns over reduced oversight and loss of state authority.
• Key section of the bill was amended to limit expanded services to stablecoin subsidiaries, but debate continues over regulatory gaps.
• The final legislation could impact how stablecoin issuers and banks offer services across state lines in the U.S. financial sector. The U.S. Senate recently approved the GENIUS Act, aiming to set new federal rules for stablecoin companies. The House has its own version called the STABLE Act, and lawmakers must reconcile major differences before any bill becomes law.

• Advertisement - A central dispute focuses on Section 16(d) of the GENIUS Act. This section would allow a state-chartered bank with a regulated stablecoin subsidiary to conduct money transmitter and custodial services in any state, without seeking authorization from that state or a federal agency. While host states could still enforce their consumer protection laws, they would lose the ability to require standard licensing and oversight usually needed for out-of-state banking.

The Conference of State Bank Supervisors (CSBS) responded by welcoming some changes but objected to the expanded powers. In a statement, “Critical changes must be made during House consideration of the legislation to prevent unintended consequences and further mitigate financial stability risks. CSBS remains concerned with the dramatic and unsupported expansion of the authority of uninsured banks to conduct money transmission or custody activities nationwide without the approval or oversight of host state supervisors (Sec. 16(d)).” The National Conference of State Legislatures also expressed opposition, writing, “We urge you to oppose Section 16(d) and support state authority to regulate financial services in a manner that reflects local conditions, priorities and risk tolerances. Preserving the dual banking system and respecting state autonomy is essential to the safety, soundness, and diversity of our nation’s financial sector.”

Section 16 not only addresses stablecoins but also seeks to prevent rules like the SEC’s SAB 121 that placed crypto assets held in custody onto company balance sheets. The nationwide authorization piece of Section 16 was added after initial committee review and has been amended twice. Originally, it applied to a few special state bank charters, such as those in Wyoming and Connecticut. Recently, coverage widened to include most state-chartered banks with stablecoin subsidiaries—likely to address competition concerns.

The clause was also narrowed. While it first allowed state banks to provide money transmission and custodial services for any asset, now it limits this to the activities of the stablecoin subsidiary. The GENIUS Act keeps issuers focused on stablecoin-related services, even though there is still debate about the exact limits of Section 16(d). By contrast, the House’s STABLE Act may let regulators permit a broader range of banking activities nationwide, beyond stablecoins.

Lawmakers must now decide if final stablecoin legislation should keep or alter provisions that reduce traditional state and federal oversight of banking operations across state lines. The debate continues as industry, state officials, and federal leaders examine potential impacts on financial stability and state regulatory control.

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