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Federal Reserve Chair Kevin Warsh twice declined to give Congress an unconditional guarantee that the central bank would never support markets during a stablecoin or crypto run. He said the Fed does not want to conduct bailouts but would act to limit severe risks to the financial system.
Sherman Presses Warsh on Stablecoin Support
Representative Brad Sherman, a California Democrat, questioned Warsh during a July 14 House Financial Services Committee hearing. He asked whether the Fed would provide emergency support if stablecoin holders rushed to redeem their tokens.
Sherman compared the scenario with past Federal Reserve support for money market funds during financial crises. He asked Warsh to assure lawmakers that the central bank would not rescue stablecoins or the wider cryptocurrency market.
Warsh did not give the requested categorical answer. He instead said the Fed did not want to be in the “bailout business” and referred to the extraordinary measures taken during the 2008 financial crisis.
Warsh Leaves Room to Contain Wider Risks
Sherman raised the issue again and asked whether the Fed might respond to a crypto run as it had to stress in money market funds. Warsh said the central bank would work to reduce extraordinary financial risks if they emerged. He added that the goal was to avoid placing the Fed in a position where it had to bail out any company, including a crypto business.
The response rejected direct support for failed companies but left open the possibility of market-wide action intended to contain systemic stress. Such measures could include liquidity provided to regulated banks or financial markets rather than direct funding for a stablecoin issuer. Warsh did not describe a specific facility or confirm that the Fed had legal authority to support stablecoins directly.
Stablecoin Rules Seek to Reduce Run Risks
The exchange comes as federal agencies implement the GENIUS Act, the U.S. regulatory framework for payment stablecoins enacted in July 2025. The law requires permitted issuers to maintain reserves backing their tokens on at least a one-to-one basis. Eligible assets include cash, deposits and short-term U.S. Treasury securities.
The framework also creates federal and state licensing routes and gives banking regulators responsibility for supervising permitted issuers. The law is scheduled to become effective on January 18, 2027, or earlier if regulators complete the required final rules.
The Federal Reserve and other agencies are still developing parts of the regime. In June, the Fed requested public comment on proposed customer identification requirements for certain payment stablecoin issuers.
Full Reserves May Not Prevent Every Run
Stablecoins are designed to maintain a fixed value, usually $1, by allowing holders to redeem tokens against reserve assets. A loss of confidence can still produce heavy redemption requests even when an issuer holds high-quality assets.
Issuers may need to sell Treasury bills or withdraw bank deposits quickly to meet those requests. Large redemptions could put pressure on short-term funding markets, financial institutions holding reserve accounts and crypto trading venues.
Federal Reserve research notes that GENIUS Act-compliant stablecoins must hold relatively safe reserve assets, including bank deposits, short-term Treasuries and certain Federal Reserve balances. The framework is intended to improve redemption capacity and reduce credit risk.
Fed’s Role Remains Unresolved During a Crisis
Warsh’s answers did not commit the Fed to protecting stablecoin holders, issuers or crypto investors. They also stopped short of ruling out broader intervention if a run threatened banks, Treasury markets or payment systems.
The distinction could become more important as regulated stablecoins grow and become more closely linked to conventional finance. The Fed may face pressure to protect market stability even while refusing to rescue the company at the center of a crisis.
Warsh gave no details on what conditions would justify action or which emergency powers might apply. The issue remains unresolved while regulators complete the GENIUS Act framework.
