Banking and Finance Law Daily Wrap Up, PRUDENTIAL REGULATION—Fed’s Barr says stablecoin regulations needed to ensure long-term acceptance, success, (Oct 16, 2025)

By A. Bryan Gerepka

There is a long and painful history of private money created in the U.S. with insufficient safeguards, leading to financial instability, Barr warns.

Stablecoins have the potential to improve the efficiency of payment systems, but "additional work” is needed to protect households, businesses, and the overall financial system, said Michael S. Barr, member of the Federal Reserve Board of Governors (Fed). If the regulatory framework provides strong guardrails and consumer protections, Barr said consumers and businesses could benefit from innovative use of stablecoins, reduced costs, and improved efficiencies across payment networks. Barr made these prepared remarks in an Oct. 16, 2025, speech to the “FinTech Week” conference held in Washington D.C.

The GENIUS Act, passed by Congress in July 2025, created a framework for stablecoins, which are digital assets pegged to the U.S. dollar or other fiat currencies. However, the rule-writing process is still outstanding, and “a great deal will depend on how federal and state regulators work together to craft and implement the regulations,” Barr stated. Moreover, the regulations will need to specifically address risks associated with unauthorized money transfers, terrorist financing, and potential bank runs, as stablecoins are a form of private money that is not insured by Federal Deposit Insurance, he added.

Stablecoin benefits. Barr highlighted the benefits of stablecoins to increase efficiency and reduce costs associated with “high-friction” payment systems, such as remittances, cross-border payments, and trade finance. The primary benefit of using stablecoins comes from the ledger itself, which can operate globally and encode functionality and conditionality directly into assets and transactions, Barr noted. This functionality unlocks a range of new financial use cases that were previously impractical when transactions required updating a series of ledgers spread across individual financial institutions, he added.

Remittances. Stablecoin payment systems can increase the speed and reduce the costs of remittances for “those least able to bear these costs,” as it is more expensive to send money to jurisdictions with less-developed domestic payment systems, he said. Over the past few years, stablecoin acceptance networks have arisen in some areas that help reduce fees associated with converting foreign-currency stablecoins into local currency coins.

Trade Finance. Similarly, stablecoins may also improve the speed of managing the paperwork and processes inherent in global trade and trade finance, perhaps with the use of smart contracts, Barr added. In these applications, a digitally native form of payment could potentially be used to streamline the tracking and validation process that occurs between financial institutions, shipping companies, customs warehouses, and trade companies. Small businesses might see lower costs and greater access; meanwhile, stablecoins may help multinational firms benefit from more efficient cash management, he stated.

Stablecoins offer the promise of near-real-time global payments, helping multinational firms manage their cash efficiently between their related entities while still making payments through local internal entities in different countries, reducing costs and improving liquidity, Barr stated.

Risks to using stablecoins. There are many benefits to stablecoin payment innovations, but risks linger. One unique feature of stablecoins is their role as bearer instruments—similar to old-fashioned traveler’s checks, Barr noted. And as bearer instruments on global permissionless networks, “bad actors” can purchase stablecoins in secondary markets that may lack customer identification requirements, he warned.

Stablecoin compliance. While the U.S. “puts a heavy premium” on ensuring that financial institutions comply with Bank Secrecy Act (BSA) rules, stablecoin compliance with these requirements can be data-intensive and costly, requiring significant staffing to identify and then address or resolve flagged issues. Barr said the related costs and risks can be mitigated by using permissioned networks with only trusted nodes to conduct “know your customer” reviews. At the same time, “AI may be well-suited to flag payments that are outliers relative to typical patterns, potentially reducing the volume of false positives and unnecessary filings,” he said. Barr pointed to technologies that can support stablecoin compliance, such as trusted identity tokens in wallets that satisfy Customer Identification Program requirements and smart contracts that freeze stablecoins in problematic wallets. This suite of tools can also be used for preventing other types of crime, such as fraud, he added.

Stablecoins are “private money.” Stablecoins are the latest evolution of private money in U.S. history. They are not backed by federal deposit insurance, and issuers cannot access liquidity from central banks, raising concerns about the instability they can introduce into the financial system. There is a long and painful history of private money created with insufficient safeguards, he warned. Financial institutions issue these instruments at par but may be unable to liquidate their assets promptly at par when facing run dynamics and market stress, Barr cautioned.

The GENIUS Act tries to mitigate “run-risk” by limiting permissible reserve assets to an itemized list of highly liquid assets, Barr said. This is a significant improvement in an area where reserve assets for stablecoins have been highly varied, he observed. However, some of the enumerated reserve assets backing stablecoins—such as uninsured deposits—are not immune to stress, as seen in the March 2023 banking crisis, Barr stated. While the GENIUS Act allows regulators to limit the concentration of reserve assets in uninsured deposits, it will matter how these rules are written and executed, he added.

Tight control over reserve assets, coupled with supervision, capital and liquidity requirements, and other measures, could enhance the stability of stablecoins and make them a more viable payment instrument over the long term, Barr concluded.

RegulatoryActivity: BankingOperations BankSecrecyAct Blockchain CapitalBaselAccords DepositInsurance FinancialStability FederalReserveSystem FinTech Privacy PrudentialRegulation