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Federal Reserve Gov. Michael Barr Warns About Regulatory Gaps in GENIUS Act

The sitting Fed Governor and former Vice Chair for Supervision is worried about "regulatory arbitrage" incentives.
Federal Reserve Gov. Michael Barr Warns About Regulatory Gaps in GENIUS Act
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Federal Reserve Governor Michael Barr believes that the newly enacted GENIUS Act marks important progress, but warns it leaves key areas of risk unaddressed. Speaking at DC Fintech Week on Thursday, Barr cautioned that the law could unintentionally open the door to regulatory loopholes that undermine its intended protections.

What’s the Scoop?

  • Progress with Caveats: The GENIUS Act, signed into law by President Donald Trump Donald Trump over the summer, created the first federal framework for stablecoin issuance and oversight. Barr acknowledged the law as a meaningful improvement that helps reduce the risk of bank-style “runs” on stablecoins, but noted shortfalls to fully safeguarding the financial system.
  • Regulatory Arbitrage Concerns: Barr warned that gaps in the law could create opportunities for stablecoin issuers to exploit inconsistencies between state and federal rules. “Issuers may argue that they are permitted under the act to perform the full range of activities conducted by FTX,” he said, emphasizing that without coordinated state and federal supervision, regulators could again allow excessive risk-taking to fester in the system.
  • Missing Protections: The law also leaves certain digital assets marketed as stablecoins outside of its regulatory perimeter. “This risks creating confusion and could result in consumers relying on payment instruments that they believe are regulated, but for which there are no prudential protections of any kind,” Barr said.

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Jack Inabinet

Written by Jack Inabinet

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Jack Inabinet is a Senior Analyst with a passion for exploring the bleeding edge of crypto and finance. Prior to joining Bankless, Jack worked as an analyst at HAL Real Estate where he conducted market research and financial analysis for commercial apartment development and acquisition activities in the Seattle region. He graduated from the University of Washington’s Michael G. Foster School of Business.

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