Government regulation of financial institutions is expensive and there is no reason to think regulation of payment stablecoins is going to be cheap. Drafting, issuing and refining financial regulations is itself a costly time-consuming process. The Basle capital and liquidity framework has taken decades to develop and implement—and it’s still unfinished. The GENIUS Act requires federal bank regulatory agencies to produce safety and soundness rules for payment stablecoins in addition to supervising the payment stablecoins issuers that will ultimately be licensed by institutions under their jurisdiction. And yet the Act does not provide any resources for developing the regulatory infrastructure needed to launch the industry.
Developing suitable payment stablecoin safety and soundness regulations will be costly. There will be additional set-up costs associated with approving payment stablecoin applications, processing and storing stablecoin issuer regulatory data, and creating procedures and manuals for on-site examinations, supervision and enforcement actions. When Congress passed the GENIUS Act, they did not appropriate any new funds or provide any legislative language that specifies how the banking agencies should fund these new nontrivial regulatory costs.
In 2023, the latest official data available, the Federal Reserve system spent $2.55 billion on supervision of its member banks and the bank and other financial holding companies it supervises. Under provisions of the Dodd Frank Act, the Fed collects supervisory fees from the holding companies it supervises that are larger than $50 billion. In 2023, these assessments totaled $625 million. Until 2022, the Fed’s remaining supervision costs were paid out of the Fed’s interest earnings on its assets. However, in 2023, the Fed had actual cash losses of $114.3 billion. The Fed’s cash losses are implicitly paid by taxpayers. So, in 2023, the remaining $1.93 billion of the Fed’s spending on financial supervision and regulation was a Congressionally-unappropriated government expense paid by taxpayers.
The FDIC is funded by deposit insurance premium assessments on banks and by net interest earnings on the Deposit Insurance Fund’s investments. In 2023, the FDIC reportedly spent $1.27 billion supervising state-chartered banks that are not members of the Federal Reserve system.
The Office of the Comptroller of the Currency (OCC) is funded by supervisory assessment fees paid by the banks it regulates. In fiscal year 2023, the OCC spent and estimated $2.55 billion on its supervision, regulation and chartering duties.
Since there are currently no licensed payment stablecoin issuers to pay regulatory assessment fees to recoup regulatory costs, and no Congressionally-sanctioned payment stablecoin assessment framework, the federal bank regulatory agencies must fund the cost of developing payment stablecoin regulations and supervisory practices from their current source of revenue—primarily insured depository institutions in the case of the FDIC and the OCC and large Fed-regulated holding companies and taxpayers in the case of the Federal Reserve. Under the provisions of the GENIUS Act, the payment stablecoin industry gets to pass its regulatory set-up costs onto banks, bank customers and, in the case of the Fed, discreetly but surely on to taxpayers.
