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Stablecoin reserve risk under the GENIUS Act: Evidence from the Silicon Valley Bank shock
Journal article   Open access   Peer reviewed

Stablecoin reserve risk under the GENIUS Act: Evidence from the Silicon Valley Bank shock

Hongzhe Wen, Songbai Li, R.S.M. Lau and Jamie Zhang
International review of economics & finance, v 110, 105620
Sep 2026
DOI: https://doi.org/10.1016/j.iref.2026.105620
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url
https://doi.org/10.1016/j.iref.2026.105620View
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Abstract

Bank run Diamond-Dybvig Federal Reserve GENIUS Act Monetary architecture Monte Carlo simulation Reserve composition Stablecoin
The July 2025 Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act establishes a U.S. regulatory framework for stablecoin reserves. The Act is silent on whether non-bank issuers may hold balances at the Federal Reserve, an open question for account-access discretion. This paper studies how reserve composition affects peg fragility under the Act and how GENIUS-compliant reserve regimes compare with a Federal Reserve master-account extension in a calibrated counterfactual stress test. We extend the Diamond-Dybvig framework to a reserve portfolio of bank deposits, short Treasuries, and central-bank balances, and derive a fragility threshold that depends on reserve composition. A high-frequency SVB event study provides the direct reserve-risk calibration from USDC, which exhibits approximately 1260 basis points of peak abnormal deviation. DAI is not used to identify reserve-composition risk; it is analyzed separately as collateral-chain contagion through MakerDAO’s Peg Stability Module and exhibits a 1462-basis-point peak abnormal deviation. A calibrated Monte Carlo simulation then compares four reserve regimes: the pre-GENIUS status quo, GENIUS-compliant bank-deposit-heavy and Treasury-heavy variants, and a Federal Reserve master-account extension. Under severe stress, the GENIUS-compliant Treasury-heavy regime has a median peak peg deviation of 2.97 percent, compared with 5.85 percent under the pre-Act status quo. Under calibrated master-account assumptions, and conditional on the redemption-attenuation assumption, the Federal Reserve master-account extension has a median peak deviation of 1.03 percent, a model-implied 65 percent reduction relative to the closest GENIUS-compliant alternative. All simulated reductions are conditional on the SVB-calibrated stress window, reserve mix, liquidity access, redemption-attenuation/pass-through, rail-capacity, T-bill haircut, settlement-timing, and queueing/service-capacity assumptions specified below. The analysis is a structured reserve-risk stress test, not a historical causal estimate or a complete welfare ranking.

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