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The Federal Deposit Insurance Corporation (FDIC) is launching a new set of regulatory changes to encourage the formation of new banks, improve cryptocurrency oversight, and be better prepared for potential large-bank failures.
Travis Hill (FDIC chair) went through these reforms in his speech to express how the agency deals with financial innovation and stability.
FDIC pushes to bring back community banks
The number of bank charters in the U.S. dropped from over 8,500 in 2008 to about 4,500 today, and Hill explains that the leading cause is that several banks merged while fewer than six banks a year are formed.
The FDIC plans to support the creation of new banks in underserved areas by lessening capital requirements for applicants looking to register with simple, traditional banks. Hill went on to mention in his speech that about 68 million Americans reside in counties without local community banks.
The FDIC also wants to reconsider how it reviews deposit insurance applications from tech-based and non-traditional banks because it’s better to regulate these groups than let them operate via complicated partnerships.
FDIC eases crypto rules to support innovation
The new FDIC guidelines allow banks to start crypto-related services without requesting permission beforehand, but on condition that they manage the risks properly and communicate with their regulators.
Hill said that the FDIC now views crypto like any other bank we’re moving activity, but it blocks public blockchain use even though other countries permit it.
The FDIC reconsidered how it handles a situation when a bank collapses after the Bank of Silicon Valley and Signature failed in 2023.
Experts like Former FDIC Chair Sheila Bair support the cause and say sales will better protect communities and recover value. There was also criticism from the likes of Shayna Olesuik, who said the FDIC is wrong to lessen the regulations surrounding it without following the proper rulemaking process.
Hill responded to critics by saying that the FDIC will ensure these banks meet high service standards while changing its rules to be more efficient and realistic for new entities.
FDIC evaluates stablecoin regulation and technical safeguards for bank resolution
Hill also touched on new issues related to stablecoins, especially in the context of Congress’ ongoing lawmaking efforts. The FDIC is reviewing whether to amend regulations governing pass-through deposit insurance to clarify eligibility criteria for stablecoin reserve deposits. Some areas for review include liquidity risk management, protection against illicit finance, and cybersecurity standards.
In 2020 and 2021, the Office of the Comptroller of the Currency (OCC) granted multiple crypto-related services to national banks, including stablecoin custody and issuance, participation in blockchain validation, and acceptance of stablecoin-related deposits. Now, the FDIC is weighing whether to clarify where permissible activities end and where they may begin or broaden its touch on regulatory guidance to add more use cases.
The speech also highlighted the need for more explicit regulatory coverage of tokenized real-world assets and liabilities, such as tokenized commercial bank deposits. Hill stressed that the FDIC sees “deposits as deposits, no matter the technology or recordkeeping used.
But he raised questions about counterparties’ ability to withdraw at par in the case of a bank failure through smart contracts, noting that could raise resolution costs if safeguards on such outflows are not protective. This concern is energizing internal FDIC efforts to consider technical solutions that could prevent unintended money moves when banks are resolved.
According to Hill, the challenge is to reconcile on-chain programmability with the traditional safeguards built into financial regulation that are intended to promote an orderly resolution of institutional failures.
