BPInsights: November 8, 2025

What Risks Do Stablecoins Pose?

The GENIUS Act requires stablecoin issuers to back their coins with safe assets and make them redeemable on demand at a fixed dollar value, but even with those protections, stablecoins can pose significant risks to retail investors and the overall financial system.

Two Key Risks. A new BPI analysis describes two major sources of stablecoin risk:

1. Loss of Value. Stablecoins can lose value despite guarantees that they are redeemable at a fixed dollar value, undermining their viability as a payment instrument.
2. Financial Stability. DeFi lending platforms pose similar risks to a highly levered bank, but unlike a bank, they lack important protections such as deposit insurance, capital requirements, liquidity buffers or regular examination. Investors who lend their stablecoins out on these platforms can incur significant losses even if the stablecoins are backed fully by safe assets.

Why It Matters. If stablecoins become more integrated into the traditional financial system without full safeguards, crypto market shocks could infect the broader economy for the first time.

• Legislative Context. The GENIUS Act was never intended to target these risks, and current market structure legislation under consideration would not reduce them.
  • A notable goal of stablecoin legislation is to turn stablecoins into safe, regulated payment tools suitable for retail customers.
  • The GENIUS Act did not prohibit indirect payment of interest by exchanges or affiliates, leaving a gap that could entice consumers to see stablecoins as an investment opportunity rather than a payment tool without understanding the risks.
  • Current market structure legislation does not address interest prohibitions among exchanges and affiliates.

Know Your Customer. In addition to the risks highlighted in this note, stablecoins are subject to critical gaps in illicit finance risk management, a new BPI factsheet explains. Learn more here.

Bottom Line. Without the proper safeguards and oversight, stablecoin legislation could provide a veneer of safety while leaving consumers exposed to the risk of runs and losses. Lending on DeFi platforms could create a cascading leverage crisis that spreads to the overall financial system.

What to Watch Next Week:

• The Federal Reserve Bank of Philadelphia holds a fintech conference on Nov. 12-13, featuring BPI CEO Greg Baer.
• The Economic Club of Washington, D.C. hosts a lunch event on Nov. 12 with National Economic Council Director Kevin Hassett, who has been named as a finalist for the next Fed chairmanship.

Five Key Things

1. Banks Submit Recommendations on Treasury's Implementation of the GENIUS Act

BPI, the American Bankers Association, Consumer Bankers Association, Financial Services Forum and The Clearing House Association responded on Tuesday to a U.S. Department of the Treasury Advance Notice of Proposed Rulemaking on its implementation of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS) Act. The submission asks Treasury to develop regulations that preserve the benefits of payment stablecoins for their intended use in payments and settlements, without causing undue risks for consumers, other stablecoin holders or users, competition, credit availability, illicit finance or financial stability.

"The GENIUS Act is a major legislative achievement that, if implemented effectively, can strengthen America's financial competitiveness," the associations stated upon filing the letter. "We are confident that Treasury is carefully considering how to craft regulations that mitigate potential risks associated with these instruments while faithfully implementing Congress's intent that payment stablecoins function as payment instruments. We recognize the complexity of developing these rules and look forward to engaging with Treasury and the federal banking agencies throughout the rulemaking process."

The associations made several initial recommendations in their letter:

• Implement Congress's intent to prohibit stablecoins from paying interest or yield. Congress broadly prohibited the payment of interest or yield by stablecoin issuers in GENIUS. That prohibition should be extended to digital asset service providers, such as exchanges and affiliates.
• Prevent regulatory arbitrage. Same activity, same regulation. Treasury should consider federal, state and foreign payment stablecoin regulatory regimes so that stablecoin issuers are held to the same rules required of any other financial institution engaged in equivalent activities.
• Enforce strict illicit finance safeguards. Combatting illicit finance requires common standards that are strictly enforced. Treasury should hold all entities engaged in the same activities to the same standards, including stablecoin issuers, digital asset services providers and banks.
• Reaffirm the longstanding separation of banking and commerce. The U.S. has maintained a longstanding policy of separating banking and commercial activities to prevent the emergence of associated risks, including undue concentration of economic power. The GENIUS Act prohibition on payment stablecoin issuance by public or foreign companies not predominantly engaged in financial activities should be implemented in a manner that continues that policy.
• Tighten safeguards to preserve trust and prevent conflicts of interest. Stablecoin issuers should provide clear disclosures, including regarding the reserves backing their stablecoins. They must also uphold the highest standards for custody and safekeeping to protect customers, maintain market integrity, foster confidence and minimize conflicts of interest.
• Apply consistent consumer protections. Stablecoin issuers and payment stablecoins must be subject to the same robust consumer protections applicable to other institutions and products that similarly facilitate payments and settlement.
• Clarify statutory definitions. Help create common definitions and standards for what constitutes a "payment stablecoin," "digital asset service provider," "foreign payment stablecoin issuer," and other novel terminologies to mitigate the risk of regulatory arbitrage and evasion.

To access a copy of the associations' response, please click here.

2. For Meta, Scams Are a Revenue Stream, Not a Risk

Tech platform Meta is "earning a fortune on a deluge of fraudulent ads," a Reuters investigation found. The company, which controls Facebook, WhatsApp and Instagram, estimates that its platforms show users 15 billion scam ads a day, and projected that 10 percent of its 2024 revenue would come from ads for scams and banned goods, according to an extensive investigative piece published this week.

• Scam Premium. If Meta suspects an advertiser is a likely scammer, but is not certain, it charges higher ad rates as a penalty. This is meant to deter suspect advertisers from placing ads.
• Exposure Amplified. Users who click on scam ads could intensify their risk of victimization - they're likely to see even more of them because of Meta's ad personalization system.
• 'Pillar of the Global Fraud Economy.' Meta claimed in the article that the documents highlighted in the story were depicted selectively and were part of a self-assessment meant to validate the company's "planned integrity investments." But while the documents do indicate efforts to fight fraud, they also "indicate that Meta's own research suggests its products have become a pillar of the global fraud economy."
• 1/3 of All Successful U.S. Scams Involve Meta, Estimates Say. "A May 2025 presentation by its safety staff estimated that the company's platforms were involved in a third of all successful scams in the U.S. Meta also acknowledged in other internal documents that some of its main competitors were doing a better job at weeding out fraud on their platforms."
• High Bar for Bans. The biggest-spending advertisers can accrue more than 500 red flags before being shut down for fraud or scams, according to Reuters.

3. What's in a Charter?

For more than 150 years, Congress has articulated a clear view that the benefits of being a full-service bank come with corresponding regulatory obligations. Banks have the right to accept deposits, make loans and process payments. Banks can also access the federal safety net of FDIC insurance and the Federal Reserve discount window. In exchange for these authorities, banks must operate prudently and comply with stringent regulations, such as capital and liquidity requirements, activity restrictions and consumer protection standards. Banks are subject to regular examinations, and their parent companies are subject to consolidated supervision by the Federal Reserve.

Recently, digital asset firms and other nonbanks have sought limited-purpose bank charters, ostensibly to engage in a limited suite of activities. These charters differ in scope and oversight, yet some of these entities appear to be seeking limited-purpose charters even though they intend to engage in traditional banking activities, such as deposit taking, without being subject to the full suite of prudential safeguards that apply to full-service traditional banks. Moreover, some of these entities are seeking to obtain these charters as a means to obtain a Federal Reserve master account, even though their activities may exceed the scope of what the charter permits. If successful, this regulatory arbitrage could undermine the safety and soundness of those institutions and the financial system more broadly and harm consumers, because these entities would be engaging in a broader set of activities than what the limited charter permits without abiding by the critical safeguards established by Congress.

For an overview of several charter types and the authorities and requirements related to each, please click here.

4. Fed Finalizes LFI Rating Changes

The Federal Reserve Board finalized changes on Wednesday to its Large Financial Institution Rating System, used to assess how well a large bank holding company is managed based on three components: (1) capital planning and positions; (2) liquidity risk management and positions; and (3) governance and controls. Tabitha Edgens, BPI Executive Vice President and Co-Head of Regulatory Affairs, issued a statement:

"Today's updates to the LFI rating system make it a more useful tool for regulators by calibrating supervisory measures to more accurately reflect risk. We hope regulators will adopt commensurate changes to the CAMELS rating framework reflecting similarly rigorous and reliable standards."

• The Problem. Under the current rating system, downgrades in one of three categories can have an outsized effect on an institution's overall rating. An "unsatisfactory" rating in one category automatically designates a bank as not "well managed," even if that rating is based on discrete, subjective factors and untethered to the institution's broader financial health. For example:
  • The Federal Reserve's November 2024 semi-annual "Supervision and Regulation Report" determined that two-thirds of large financial institutions were "less-than-satisfactory," while concurrently indicating that "the banking system remains sound and resilient." The latest 2025 data accompanying the final rule found that about half (17 of 36 firms) would be "not well managed" under the current LFI; however, that number would decrease to 10 based solely on the LFI framework once the finalized changes become effective. These figures are down from the 23 firms that were considered not well managed as of Q4 2024, according to the Federal Reserve's July proposal.
  • Furthermore, the Fed emphasized in its final notice that "most banks are well capitalized; liquidity and funding conditions are stable compared to 2023; and asset quality generally remains sound. Likewise, the results of the Federal Reserve Board's 2025 annual bank stress test show that large banks are well positioned to weather a severe recession, while staying above minimum capital requirements and continuing to lend to households and businesses."
• The Result. Ratings downgrades limit banks' abilities to make new investments or acquisitions, expand their products, services or branch networks, and carry out internal reorganizations. These limitations apply even if the issue cited to support the bank's downgrade is wholly unrelated to the activities that are limited as a result of the downgrade.
• What Changed? The changes improve the accuracy of the framework and, therefore, its usefulness to regulators. The new rules:
  • Allow a bank with at least two Broadly Meets Expectations or Conditionally Meets Expectations component ratings and no more than one Deficient-1 component rating to be considered "well-managed." The final notice indicates this will affect between 3 and 7 out of the 36 institutions per 2025-Q3 data.
  • Remove the automatic presumption that a Deficient-1 or Deficient-2 component rating will trigger an enforcement action. Instead, enforcement will depend on the specific facts and severity of the issues identified, giving regulators greater discretion to make decisions based on the firm's overall risk profile.
• Broader Context. The LFI changes are part of a broader effort among the Fed and other banking agencies to refocus supervision on the risks that matter most and to align bank ratings more closely with banks' financial health and material risk profile.

5. Bowman Speaks on Basel, Crypto at International Banking Conference

Federal Reserve Vice Chair for Supervision Michelle Bowman indicated this week that the forthcoming Basel Endgame proposal is a high priority, but must be considered in the context of the broader capital framework. "That's one of the priorities that we have, but we can't look at capital in a vacuum," Bowman said at Santander's International Banking Conference. Bowman has repeatedly emphasized the necessity of considering capital changes in this broader context rather than piecemeal. The Fed has proposed major changes to stress testing to enhance its transparency and the accuracy of its models and has proposed changes to the enhanced supplementary leverage ratio.

Digital Assets. Bowman noted that the Fed is considering next steps for digital assets in the wake of the GENIUS Act stablecoin law. It is "critically important" that banks can engage in digital asset activities, Bowman said. "We want to make sure that they're not left behind but we also want to make sure that they're engaging in a way that separates those digital assets on their balance sheet from their regular business activities," she said.

In Case You Missed It

Bloomberg Editorial Supports Removal of Reputation Risk from Bank Supervision

A Bloomberg editorial this week expressed support for a proposal to remove reputation risk from the federal bank examination framework. Focusing on reputation risk could pose a needless distraction from more important threats to safety and soundness, the editorial noted. "The 2023 collapse of several midsize banks that were overly reliant on uninsured deposits showed that supervisors sometimes still struggle to assess even straightforward financial risks," the editorial stated. "As a notice for the proposed rule puts it: 'encouraging supervised institutions to alter their behavior due to reputation risk may have adversely impacted institutions' earnings, capital positions, and safety and soundness,' while inducing them to divert resources 'that could be better spent on other risks.'"

It's a good sign, then, that the main bank regulators are planning to eliminate such alleged threats from their examination requirements - and trying to focus instead on 'concrete risks and objective criteria' that affect safety and soundness."

FT: Money Markets Flash Warning Signs

Stress is re-emerging in U.S. money markets as reserves decline under the Federal Reserve's quantitative tightening program, reported the FT. The spread between tri-party repo rates and the Fed's rate on reserve balances briefly reached its highest level since 2020 and while rates have since eased, some analysts warn that funding pressures could return. Dallas Fed President Lorie Logan said that if high repo rates persist, the Fed "would need to begin buying assets.

Coinbase Trust Charter Bid Raises Major Concerns

In a letter filed Monday, BPI expressed significant concerns about crypto firm Coinbase's application for a national trust bank charter. A trust bank charter for Coinbase could harm consumers, present large-scale risks to the financial system and violate the limits on trust bank activities.

• Beyond the Bounds. Entities with national trust bank charters may only engage in fiduciary and related activities, but Coinbase's plans suggest it may seek to engage in traditional banking activities like taking deposits, the letter said. "The limited description of Trust Bank's proposed activities raises more questions than it answers," BPI said in the letter. "One can assume that if Trust Bank intended merely to act as a custodian for assets, it would have said so."
• Stablecoin Concerns. Coinbase's charter application does not disclose how its trust bank activities would relate to stablecoins, but "the implication of Trust Bank's Application and publicly available marketing information from Coinbase is that Trust Bank will almost certainly engage in stablecoin-related activities," potentially triggering other regulatory requirements.
• Volatility. The letter flagged concerns about the volatility of digital assets and the risks that could pose to a trust bank focused exclusively on that market. "Given this demonstrated volatility, we believe it is difficult over the long-term for a national trust bank entirely reliant on the digital asset market without diversified exposure to other economic sectors to operate in a safe and sound manner. This intrinsic volatility could threaten the long-term solvency of Trust Bank, particularly in the inevitable periods of stress, which may necessitate costly federal intervention to prevent consumer harm and contagion to the broader banking system."
• Other Charters. BPI expressed similar concerns about crypto and fintech trust charter applications in a series of recent letters. Learn more here.

Highlights from the TCH Conference

TCH hosted its annual conference this week, featuring two days of conversations from leading policymakers on payments innovation and regulatory changes affecting the industry. Here are several panels worth highlighting:

• OCC's Gould: Charters, Preemption. National bank preemption is a "defining characteristic" of the banking system, said OCC Comptroller Jonathan Gould this week at The Clearing House's annual conference. He said he plans to defend preemption on a broader level than legal proceedings - emphasizing the necessity of political buy-in. "It's not enough just to engage on the legal merits," he said. "That is downstream from the eroding political support that we've seen over the last 15 years for preemption." Gould framed the entry of nonbanks into the banking system as a way for the OCC to subject them to a level playing field alongside banks. "If they meet our statutory standards and our supervisory expectations, that's literally the condition preceding before I can even attempt to put them on a level playing field," he said. The remarks came as multiple crypto and fintech firms have sought OCC charters.
• BPI's John Court on Supervision, Legal Landscape. BPI General Counsel and Chief Operating Officer John Court discussed supervision reform and legal challenges of regulatory actions. Issues raised on the panel included capital rules, stress testing, the CFPB's 1033 rule and the debit interchange rule. The panel also featured a discussion of the OCC's efforts to reduce account closures. At a high level, panelists also described how key Supreme Court administrative law rulings have shaped the bank regulatory landscape. A key theme: The banking agencies' efforts to refocus supervision on material risks. "I think that's what this administration's agency leaders are trying to do, which is to refocus supervision on things that are material to the financial condition of the firm and to not get sidetracked on the immaterial," Court said.
• BPI's Heather Hogsett on Adapting Regulation to the GenAI Era. On a panel about regulating technology and artificial intelligence, BPI Head of BITS Heather Hogsett suggested a rethink is in order when it comes to regulators' approach to AI. The posture should shift from reflexive skepticism of new technologies to instead considering the risks of failure to innovate, Hogsett said. The industry and policymakers should "change the paradigm of how we think about this, and we need that to start with our regulatory framework. We saw this … when cloud technologies first came around, it took the examiners about five years or so to kind of get comfortable with it. Meanwhile, firms were seeing that you can have immediate benefits from a security and resilience perspective."
• BPI's Greg Williamson on Fighting Fraud and Scams. Greg Williamson, BPI Senior Vice President, Fraud Reduction, discussed the urgency of addressing fraud and scams in the financial system on a panel about fraud in instant payments. Fraud and scams are on the rise and this critical problem requires a coordinated response among the industries affected by it, Williamson said.
• CFPB's 1033 Rule in the Spotlight. One of the most-watched rules in the courts, the CFPB's Section 1033 data sharing rule, was the subject of a panel at the conference featuring representatives from JPMorgan Chase, Akoya, Trustly and Plaid. As the rule undergoes a rewrite, with comments recently being submitted on the CFPB's advance notice of proposed rulemaking, experts from both banks and aggregators discussed how permissioned consumer data sharing is affecting the financial services landscape.

The Crypto Ledger

Here's the latest in crypto.

• DeFi in Danger. The decentralized finance, or DeFi, sector of crypto markets faces "serious security vulnerabilities that put it at risk of hacking and theft," according to a Financial Times interview with Chainalysis CEO Jonathan Levin, whose firm analyzes the crypto sector. Levin warned that the rapid growth of DeFi platforms has exposed users to heightened risks.
• Anchorage COO Eyes 'Skinny Master Account.' Rachel Anderika, chief operating officer of Anchorage Digital Bank, expressed enthusiasm in an American Banker podcast interview about the "skinny master account" recently floated by Fed Governor Christopher Waller. Anderika noted that Anchorage has a master account application outstanding (presumably for the regular type, as the "skinny" type is not yet available). She discussed the tiered framework for master account consideration.
• Senators Call White House Crypto Aide as Market Structure Draft Takes Shape. Senate Agriculture Committee Chairman John Boozman (R-AR) and Sen. Cory Booker (D-NJ) were set to speak with White House crypto and AI czar David Sacks on Wednesday as lawmakers work on a discussion draft of the Agriculture Committee's portion of crypto market structure legislation, POLITICO reported.
• Bitcoin Slump After 'Whales' Dump $45 Billion. Long-term bitcoin holders offloaded around $45 billion, or 400,000 bitcoin, over the last month, leaving the market unbalanced, according to Bloomberg.

Traversing the Pond

Here's the latest in international banking policy.

• EC Launches Market Risk Consultation. The European Commission this week published its consultation on the market risk element of the Basel capital framework, known as the fundamental review of the trading book (FRTB). The consultation poses questions to commenters, including on the multiplier for market risk capital requirements, calibration options for that multiplier and the option of temporary modifications in the implementation of the FRTB.
• Digital Euro Pushback. The European Central Bank's plan for a digital euro is facing backlash from European banks and EU lawmakers, according to the Financial Times. Over a dozen banks warned that the digital euro could undermine private sector payment systems. The note of caution came ahead of a major European parliamentary hearing on the project on Wednesday.
• Germany Uncovers Payment Firm Fraud. German law enforcement officials made multiple arrests this week to break up alleged fraud and money laundering networks operating through payment firms, according to Bloomberg. Law enforcement officials said they suspect former employees of four large German payment firms had knowledge of the fraud but allowed it to occur. Germany has cracked down on payment firms in recent years after the Wirecard scandal.

Dimon Talks Policy, AI, Economy with CNN's Erin Burnett

In an interview this week with CNN's Erin Burnett, JPMorgan Chase CEO Jamie Dimon discussed a range of topics, including the labor market, the need for sound public policy and the outlook for artificial intelligence. Watch the interview here.