As the Senate gets ready to consider GENIUS - a potentially landmark piece of stablecoin legislation - lawmakers should pay close attention to the risks posed by Section 10 on custody in the current section of the bill; it should be a concern to everyone worried about bailouts.

The language in Section 10 recreates the very risks that led to the failures of Silicon Valley Bank (SVB) and Signature Bank. The so-called “commingling exceptions” allow customer stablecoin reserves to be pooled in omnibus accounts at banks and treated as general deposit liabilities - erasing the line between custodied assets and institutional risk. In a stress event, customers won’t distinguish between segregated and bank-exposed funds, triggering panic withdrawals - just like SVB.

Worse, the current language permits regulators to authorize further commingling by rule, opening the door to regulatory capture. While it offers priority to customer claims, that’s meaningless if the assets aren’t truly separated and traceable.

This isn’t custody. It’s systemic risk in disguise.