Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—Fed seeks comment on GENIUS Act framework for stablecoin issuers it supervises, (Sep 25, 2026)

By Shashi Kant, BALLB, LLM

The Fed proposed reserve, capital and risk management rules for stablecoin issuers it supervises, and a bank application process.

The Federal Reserve Board (Fed) has proposed a regulatory framework for payment stablecoin issuers under its supervision to implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), together with a separate proposal setting out how insured state member banks may apply for approval for a subsidiary to issue payment stablecoins. According to the Fed’s September 24, 2026, press release, the first proposal would require Fed-supervised issuers to fully back their stablecoins with permissible reserve assets, such as short-term Treasury bills, and would set standardized capital and risk management requirements. The comment periods for the reserve, capital, and risk management proposal and on the application proposal close 60 days after publication of the notices in the Federal Register.

Barr statement. Fed Governor Michael S. Barr said in a separate statement that he supports the proposal as a step toward strong guardrails and consumer protections for stablecoins. He also said he is concerned that the “significant or systemic” standard may have unknown effects on the Fed’s ability to confirm that institutions maintain compliant anti-money laundering programs.

Covered issuers. The GENIUS Act, enacted on July 18, 2025, generally prohibits anyone other than a permitted payment stablecoin issuer (PPSI) from issuing a payment stablecoin in the United States, the Fed explains in the proposal. According to a Fed staff memo, Fed-supervised PPSIs are subsidiaries of insured state member banks approved by the Fed, and state-qualified PPSIs that are uninsured state-chartered depository institutions with $10 billion or more in outstanding stablecoins that transition to the Fed’s framework. The GENIUS Act takes effect on the earlier of January 18, 2027, or 120 days after the primary federal payment stablecoin regulators issue final implementing rules, the memo notes.

Reserve assets. Under the proposal, a Fed-supervised PPSI would have to hold segregated reserve assets with a fair value that equals or exceeds the par value of its outstanding stablecoins at all times, the staff memo says. Permissible reserves would include cash, Federal Reserve Bank balances, demand deposits, Treasuries maturing in 93 days or less, and certain overnight repurchase agreements, according to the memo. An issuer that falls below full backing would have to notify the Fed, liquidate its reserves, and redeem its stablecoins, unless the Fed directs it to follow a plan to return promptly to compliance, the memo states. The memo says issuers would also have to redeem stablecoins within two business days, unless a safe harbor applies.

Capital. The proposal would impose a 2 percent capital requirement on reserve assets held as uninsured deposit claims and undercollateralized reverse repurchase agreements, the memo says. The memo describes an operational risk charge of 2.0 percent on the first $20 billion of outstanding stablecoins, 1.5 percent on the next $30 billion, and 1.0 percent above $50 billion. According to the memo, an issuer that remains below its minimum capital requirement at two consecutive quarter-ends would have to liquidate its reserves and redeem its outstanding stablecoins.

Yield and activities. The proposal would implement the statutory ban on paying interest or yield solely for holding, using, or retaining a payment stablecoin, the Fed states. Following the approach proposed by the Office of the Comptroller of the Currency (OCC), the Fed would presume that certain yield arrangements with affiliates or related third parties are prohibited, though an issuer could rebut that presumption, according to the proposal.

Supervision. The Fed would generally conduct a full-scope examination of each Fed-supervised PPSI at least once every 12 months and would require confidential weekly reports, the memo states. According to the memo, a Bank Secrecy Act/anti-money laundering deficiency would have to be “significant or systemic” before the Fed could take supervisory or enforcement action.

Application process. Under the second proposal, an insured state member bank would file an application by letter with its Federal Reserve Bank that includes a business plan, financial projections, and biographical reports, the Fed states. The Fed would have 30 days to tell the applicant whether the application is substantially complete and 120 days from that point to decide, after which the application would be deemed approved, according to the proposal. The Fed says it may deny a substantially complete application only if the proposed activities would be unsafe or unsound. According to a staff memo, the Fed would use information it already holds as the applicant’s primary federal regulator to minimize unnecessary burden.

Industry group comments. Industry Christopher Appel, Director of Banking Policy at Better Markets, said in a statement that the Fed’s proposal, like those of the OCC and the Federal Deposit Insurance Corporation, “fails to include guardrails essential” to protecting the financial system. Appel said the capital framework becomes relatively less demanding as issuers grow. He also said the proposal omits binding quantitative limits on reserve asset concentrations and leaves step-in risk unresolved.

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