CSBS Urges Treasury to Preserve State Authority in Implementing the GENIUS Act

The core of CSBS’s comments is a defense of the dual regulatory model that has long defined U.S. banking supervision. The group said Treasury should recognize that states have more than a decade of experience supervising digital asset providers and money transmitters, as well as a longstanding role in licensing financial institutions.

The letter urged Treasury to define a state regulatory regime as “substantially similar” to the federal framework if it meets or exceeds the standards set forth in Section 4(a) of the GENIUS Act and the state regulator has the authority to enforce them. State regimes should not be required to mirror federal implementing regulations, the organization stressed, claiming Congress intended the Act to set a federal floor, not a ceiling, allowing states to impose additional protections or supervisory requirements as needed.

CSBS also urged Treasury to revise what it called “unrealistically short” timelines for state certification of regulatory regimes under the law. It recommended a streamlined process that allows states to express their intent to regulate stablecoin issuers and apply for certification when ready, rather than risk losing eligibility due to statutory deadlines.

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Another central concern in the CSBS letter is the scope of permissible activities for payment stablecoin issuers. The group said Treasury must make clear that issuers are not banks or money transmitters and cannot engage in lending, yield-bearing programs, or other financial services outside the Act’s express authorizations. Such payments, the group warned, could lead to deposit flight from the banking system, increase systemic risk, and undermine financial stability—the very risks the Act seeks to prevent.

That echoed concerns raised by other banking organizations, including the American Banking Association, in the wake of the GENIUS Act being passed by Congress.

Related: How the GENIUS Act Could Reshape Payments of All Types Through the Use of Stablecoins

The letter also called for stringent oversight of non-financial companies seeking to issue stablecoins. Under the statute, a public non-financial services company can issue a payment stablecoin only with the unanimous approval of the Stablecoin Certification Review Committee (SCRC). CSBS said that standard should be applied rigorously, with approval granted only when the applicant can demonstrate that issuance poses no material risk to financial stability or competition. The same standards, it added, should apply to private non-financial companies under the Comptroller’s supervision.

CSBS also underscored the continuing role of state consumer protection laws. The GENIUS Act, it noted, explicitly preserves host-state consumer protection authority for both federal and state-qualified issuers, limiting federal preemption to chartering and licensing matters. Treasury’s rules, the letter said, should reinforce those limits and ensure that consumers remain protected under state law regardless of an issuer’s regulatory status.

To mitigate the risk of redemption runs or insolvency, CSBS recommended that Treasury and the federal banking regulators require issuers to freeze issuance and redemption if reserves fall below the law’s one-to-one backing requirement. Regulators should also ensure that issuers maintain sufficient capital buffers and establish orderly winddown plans to protect holders outside of bankruptcy.

By reinforcing the state–federal partnership and preventing regulatory overreach, CSBS said Treasury can ensure that the GENIUS Act promotes both responsible innovation and enduring confidence in the U.S. financial system.