BPInsights: June 13, 2026

House of Straw: Four Sources of Stablecoin Instability

The GENIUS Act, a law to create a framework for stablecoins, leaves major cracks in the regulatory foundation unfilled. These gaps need policymakers' attention.

Underappreciated Risk. Policy focus on stablecoins has centered on their effects on deposits, monetary policy and the dollar. But an overlooked risk is how stablecoins' legal and operational structure threatens consumers and financial stability. The emerging U.S. stablecoin framework under the GENIUS Act has four fundamental flaws that warrant a closer look:

1. Operational and illicit finance risks. These can undermine the solvency of stablecoin issuers and confidence in stablecoins more broadly.
2. Redemption mechanics that can make destabilizing runs more likely.
3. Serious uncertainty about the rights of stablecoin holders and other stakeholders that are likely to lead to protracted disputes when issuers fail.
4. A deeply flawed resolution and bankruptcy framework that exacerbates all of the above.

Worrisome Fault Lines. Flaws in the GENIUS framework make chaos and consumer harm a natural consequence, rather than a far-fetched worst-case scenario. Existential operational risks, include major AML vulnerabilities, make it likely that stablecoins will run at the first sign of trouble, with stablecoin holders storming the exits and seeking to redeem their coins en masse. A current federal proposal would not guarantee all retail holders a right to redeem their stablecoins, and would allow issuers to honor redemption requests in any order they choose, putting the largest and most sophisticated institutional customers at a clear advantage over retail investors. The fine print of stablecoin agreements and terms of service further intensify concerns about stablecoin holders' rights, both during times of stress and in a bankruptcy. Stablecoin holders could wait weeks or months to get some or all of their money back if an issuer goes under, relying on arcane, centuries-old legal principles or bankruptcy processes that are likely to be messy and ineffective.

Five Key Things

1. Basel: Where Are We Now?

Next Thursday, June 18, public comments are due on the federal banking agencies' Basel capital proposal. Global regulators agreed on the final set of Basel III standards in 2017, with the goal of ensuring that no country allows its banks to hold significantly less capital to gain a competitive advantage. Here's a recap of the long and winding road to finalizing these critical capital standards, which drive the cost and availability of credit for the economy. (To step back further and learn how capital works, click here.)

2. BPI Statement on FinCEN Guidance to Help Financial Institutions Eliminate Fraud Through Information Sharing

Yesterday, FinCEN issued guidance to help financial institutions eliminate fraud through information sharing. BPI issued the following statement:

FinCEN's new guidance is a critical step in helping banks to disrupt fraud and scams in real-time. It affirms that financial institutions may share fraud-related information under the USA PATRIOT Act's section 314(b) safe harbor. We encourage Congress and other agencies to continue efforts to remove legal uncertainty, establish clear safe harbor protection for banks and further ability to protect Americans from this growing threat.

3. A More Effective AML Regime Puts Flexibility First

Two comment letters filed this week by BPI and The Clearing House Association highlight opportunities to strengthen the nation's anti-money laundering (AML) framework, including support for a recent regulatory proposal to make bank AML programs more risk-based and recommendations to address meaningful gaps in AML oversight of digital asset markets.

The first comment letter focuses on a recent regulatory proposal that would allow banks' anti-money laundering (AML) programs to focus their resources on the most urgent threats.

In the second joint comment letter, BPI and The Clearing House emphasized the meaningful gaps in AML/CFT obligations in the secondary market for payment stablecoins and other digital assets. Even though most illicit activity occurs in the secondary market, current regulatory requirements fail to impose sufficient AML obligations on secondary-market actors such as decentralized finance (DeFi) firms, certain digital asset custodians and exchanges, the letter says. Crypto illicit-finance risks make effective AML oversight in the secondary market critical.

4. Congress Examines Chinese Money Laundering Networks in Hearing

A House Financial Services Committee hearing this week examined the use of Chinese illicit finance networks as a conduit for drug cartels and other global criminal organizations. Witnesses at the hearing included Liana Rosen of the Congressional Research Service, Leland Lazarus of Lazarus Consulting, retired Treasury official John Cassara and Louis DeTitto of MissionLytics.

• Dirty Money Superhighway. Witnesses positioned Chinese money-laundering networks as the dominant service providers for cartels, fraud rings and other transnational crime syndicates, as well as for Chinese nationals evading capital controls. The networks have a competitive advantage in the illicit financing ecosystem, offering cheaper, faster and more reliable services than competitors.
• Crypto. Witnesses noted that while the Chinese networks are the leading pathway for illicit finance, crypto has become the leading currency. Sanctioned entities received a 694 percent increase in crypto funds in 2025. Crypto also represents a vulnerability in the U.S. AML regime. It is "much more difficult for law enforcement to follow the money when it comes to crypto," Cassara said. There is also a gap in law enforcement and regulator access that warrants urgent resolution - DeTitto said investigators need access to intelligence from both crypto exchanges and traditional financial institutions.
• Tactics. The networks leverage underground banking, shell companies and other illicit means to function as clearing houses for criminal proceeds, witnesses described. The specific tactics employed by such networks leave little trace, rendering traditional AML screening less effective. Cassara called AML legislation the "least effective of any anti-crime measure anywhere," arguing that today's laundering methods operate outside the environment the Bank Secrecy Act was designed to regulate.
• Is the Juice Worth the Squeeze on SARs? Suspicious activity reports can be useful, but FinCEN fails to keep pace in its capacity to analyze and operationalize the sheer volume of financial intelligence generated each year, Cassara said. He called for more "boots on the ground" to pursue cases, and said banks are increasingly frustrated by costly AML compliance that yields little actionable feedback. "AML compliance programs for banks alone cost roughly $50 billion a year, or about 25 times more than we actually recover from criminal proceeds," he noted.

5. Fed to Release Stress Test Results on June 24

The Federal Reserve this week announced that it will release the results of the 2026 stress test on June 24 at 4 p.m. ET. These results will not affect large bank capital requirements, in line with a February statement that the Fed would maintain the current stress test capital buffer requirements until 2027, when new requirements can be determined based on models accounting for public feedback on the Fed's recent stress testing proposal.

In Case You Missed It

FDIC's Hill Signals Agency is 'Rethinking Resolution Readiness'

FDIC Chairman Travis Hill previewed upcoming reforms to banks' resolution requirements in a speech this week titled "Rethinking Resolution Readiness: Learning from Experience and Sharpening Focus." Here are a few highlights.

• IDI Planning. The FDIC's approach to resolution planning for large insured depository institutions "needs to be fundamentally reexamined, reoriented and rationalized," Hill said, expressing skepticism about the value of lengthy narrative plans in this context. The FDIC will propose a new approach with two parts, he said. First, the IDI Rule will be "significantly slimmed down to focus more narrowly on key operational information most pertinent to the FDIC's ability to execute an orderly resolution." Second, the FDIC would establish a new "resolution readiness adjustment" to the deposit insurance framework for larger banks, which would allow such banks to qualify for a reduced quarterly assessment if it meets certain data requirements demonstrating preparation for a potential failure. "Fundamentally, an ability to quickly populate a [virtual data room] and/or providing the FDIC with advance systems access is likely to lower the cost of a bank's failure, and therefore should result in a lower deposit insurance assessment," Hill said.
• Assessment Changes. Hill also described forthcoming proposals to change the assessments framework. The FDIC plans to raise the threshold for banks subject to the "large bank scorecard" "so that the threshold better reflects the scale, complexity, and risk profile of institutions for which the large bank scorecard is designed." The agency also plans to reduce assessments, recognizing progress made in growing the Deposit Insurance Fund to its highest reserve ratio since the 1960s.
• Least Cost Test. The FDIC is required by law to choose the resolution option that is least costly to the DIF, but flexibility is needed, Hill said. He recommended that Congress consider a de minimis exception to the least cost rule, which would enable the FDIC to choose a resolution option that is not the least costly option (but with a small difference). "Primarily, this would help mitigate the perception of a two-tier deposit insurance regime, where uninsured depositors take losses at small banks but not large banks, by allowing the FDIC to choose an all-deposit bid when the difference in cost to the DIF is essentially a rounding error in the overall cost of bank resolutions," he said. "Imposing losses in such cases can have a material impact on a local community, and on community banking as a business model, while saving tiny amounts for the DIF."

Zelle Makes International Debut in India

Early Warning Services this week announced that India will be the first country where U.S. consumers can use Zelle to send money to family and friends overseas, expanding the payments service to international use. "As the world's largest recipient of remittances, India is a natural starting point and an important corridor for the millions of American consumers who regularly send money to the country. Initial availability is expected before the end of this year," the announcement stated. The company also unveiled ZelleUSD (ZLUSD), its proprietary U.S. dollar-backed stablecoin, which it said will support future international payment capabilities in other markets.

Judge Gives Preliminary Nod to Visa, Mastercard Interchange Settlement with Retailers

A revised $38 billion settlement between Visa and Mastercard and retailers received preliminary approval from a U.S. district court judge this week, marking a milestone in decades-long litigation over interchange fees. The parties had initially proposed a $30 billion settlement, which was rejected by a different judge in 2024. "The amended settlement provides more extensive relief than the first settlement, notwithstanding the objections to its adequacy," District Court Judge Brian Cogan said in a written decision Tuesday granting preliminary approval to the proposed settlement, which would allow retailers to reject certain higher-cost cards.

American Banker: California-Chartered Banks Eyeing Federal Charters

An American Banker article this week highlights the likely prospect of some California-chartered banks seeking federal charters amid expectations of a stringent regulatory environment under former CFPB Director Rohit Chopra, who has recently been appointed to lead a newly formed agency overseeing "a mix of California's consumer and business-facing departments, including the department that regulates state-chartered banks." California banks also report mounting assessment fee costs. Citizens Business Bank, a Southern California institution that was previously chartered by the state, recently received an OCC charter.

The Crypto Ledger

Here's the latest in crypto.

• BPI Expresses Concern About Kraken Trust Charter Application. BPI filed a letter this week expressing strong concern about the application of Payward National Trust Company (the parent company of crypto firm Kraken) for an OCC national trust bank charter. The letter, one in a series of several from BPI flagging the risks of such charter bids, urges the OCC to consider important policy questions before proceeding with the application, including whether the approval would "permit the national trust bank charter to be used in a new and untested manner that could significantly increase risks to the U.S. financial system and create an unlevel playing field." Kraken recently received a limited master account from the Kansas City Fed, which the Fed has framed as a limited-time pilot.
• SBF Seeks Pardon. Sam Bankman-Fried, the founder of FTX who was jailed after being convicted of fraud, conspiracy and money laundering in 2023, has applied for a presidential pardon, according to media reports. Bankman-Fried is currently serving a 25-year prison sentence.
• Crypto Firms Urge Senate to Vote on CLARITY. Stand with Crypto, the Blockchain Association and other crypto firms and groups urged Senate leaders to hold a floor vote on the CLARITY Act, the crypto market structure bill. "Clear oversight will strengthen market integrity, improve transparency and accountability, and give consumers greater confidence when engaging with digital asset products and services," the groups said in a Monday letter. The rush to the finish line is not a universal call among stakeholders, however. Law enforcement groups have expressed strong concern about provisions that limit their ability to track, investigate and prosecute criminal activity involving blockchain networks, including money laundering and other forms of illicit finance.

Traversing the Pond

Here's the latest in international banking policy.

• Global Finance Groups Push for Simpler European Union Sustainability Reporting Rules. BPI, the Swiss Finance Council, UK Finance and a coalition of other trades urged the European Commission to fulfill its aim to simplify sustainability reporting rules for banking organizations. "The revision should maintain this simplification objective, focus on decision-useful information for banks, investors and other users and provide a workable approach to sustainability reporting for all companies operating in the EU," the associations wrote in a June 3 comment letter. The groups emphasized the need for flexibility in the reporting framework - the absence of it would "result in an unnecessary duplication of reporting efforts and redundant administrative burden without any additional benefits in terms of the scope or quality of disclosed information," they pointed out.
• FSB Releases Guidelines for AI Adoption. The Financial Stability Board this week released its sound practices for AI adoption. The proposals emphasize proportionality in AI oversight: high-risk AI use cases require intensified controls. The FSB flags agentic AI as warranting special attention. Third-party risk is also mentioned in the proposals, including the risk of concentration among a handful of technology providers. The FSB poses seven questions, signaling areas of uncertainty: whether case studies adequately address the risks of nonbank financial institutions, for example.
• UniCredit Nears Effective Control of Commerzbank. UniCredit is nearing effective control of Commerzbank with a stake of ~41% as of June 10, according to a JPMorgan analyst report. Most investors expect the offer to be improved to achieve a much higher stake, the analysts said. Gaining control of Commerzbank would consume significant capital, according to the research.
• France, Italy and Spain Propose Cross-Border Banking Framework. In a recent paper, France, Italy and Spain recommended reforms to ease the path for cross-border banking in Europe, according to Bloomberg. The countries suggested the creation of a special framework covering banks with "material cross-border activities" and the establishment of a new European Financial Stability and Competitiveness Board. They argue that such measures would allow banks to use branches across the region more seamlessly and ease pressure on capital rules.

Inside the Never EVER Campaign

Monday is World Elder Abuse Awareness Day. This year, BPI is spotlighting the Elder Justice Coordinating Council's Never EVER campaign to expose how sophisticated criminal enterprises impersonate trusted institutions.

Learn how to spot the signs of an imposter scam so you can avoid them here.

Member News

Running a Bank in the Age of AI: Goldman Sachs CEO David Solomon Joins 'Odd Lots'

The future of AI, both in the banking business and in broader society, was a focus in this recent Odd Lots interview with Goldman Sachs CEO David Solomon. Solomon discusses Anthropic, AI's impact on jobs, current conditions in capital markets and more. Check out the interview here.

Upcoming Events

• 6/16/2026-6/17/2026: FOMC Meeting
• 6/24/2026: Fed Releases Stress Test Results
• 6/24/2026: HFSC Hearing: Future of Payments: Promoting Innovation and Fair Markets