BPI urges strict parity for state stablecoin rules

The Bank Policy Institute (BPI) told the Treasury Department in a June 2 letter that state-level stablecoin regimes must match the GENIUS Act federal rules on reserves, capital, liquidity and a ban on paying yield. BPI warned weaker state standards would encourage issuers to seek the most permissive charters and create regulatory arbitrage.

The letter responds to a Treasury proposal that will set criteria for when a state stablecoin framework is “substantially similar” to the federal regime. Under the GENIUS Act, issuers with $10 billion or less in outstanding stablecoin supply may opt for state regulation if Treasury finds the state rules meet that threshold. The determination will decide whether smaller issuers can operate under state oversight and on what terms.

BPI identified four areas it says must have no meaningful differences: reserve requirements, including asset quality and segregation; capital buffers comparable to federal rules; liquidity standards that preserve 1:1 dollar redeemability under stress; and a prohibition on paying interest or yield on stablecoins.

The letter warned: “If a State-level regulatory regime imposes fewer restrictions or requirements on PPSIs in any material way, as compared to the Federal regime, PPSIs will have clear incentives to engage in regulatory arbitrage and seek licensure in that state.”

BPI cited state charter competition from the 1980s and early 1990s as a precedent, noting more than 1,000 thrifts failed and cleanup costs to taxpayers were estimated at about $160 billion.

The no-yield prohibition drew particular attention. BPI said allowing state-chartered issuers to pay yield would let stablecoins compete with bank deposits without the same consumer protections, deposit insurance and capital obligations that apply to banks.

The letter arrived amid other policy and market developments. Federal Reserve Governor Christopher Waller has endorsed dollar stablecoins as a tool to project U.S. monetary policy globally. The Clearing House announced plans for a tokenized deposit network targeting a 2027 launch. A Bank of England official suggested tokenized deposits could replace stablecoins within five years. Banks and fintechs such as Revolut US and SoFi are rolling out bank-linked stablecoin products.

The Treasury Department has not yet published a final standard for substantial similarity. Its decision will determine whether smaller stablecoin issuers can operate under state supervision and will affect competitive pressures among banks, fintech firms and crypto companies.