The Federal Reserve has introduced two proposed regulations under the GENIUS Act that focus on the backing of payment stablecoins and the protocol for banks seeking to issue them through subsidiaries.
Summary
- Issuers under the Fed’s supervision are required to fully back their payment stablecoins with qualified reserve assets.
- The reserve proposal outlines guidelines related to capital, risk management, and the entities that hold backing assets.
- Insured state member banks must obtain Fed approval to permit a subsidiary to issue payment stablecoins.
- Public input is encouraged 60 days post the proposals’ publication in the Federal Register.
On September 24, the Federal Reserve Board stated it is inviting public comments on two proposals for payment stablecoin issuers under its jurisdiction. One proposal details operational standards for issuers and firms managing their reserves, while the other outlines the process for an insured state member bank to gain approval for issuing stablecoins through a subsidiary.
The proposals seek to clarify various elements of the GENIUS Act regarding U.S. banks and stablecoin entities. They are subject to change, and a 60-day comment period will begin once the notices are published in the Federal Register. The Fed did not specify a deadline for feedback on these proposals in its announcement.
How the Fed Plans to Oversee Stablecoin Reserves
The first proposal states that an issuer supervised by the Fed must hold acceptable assets to fully back its outstanding payment stablecoins. The Fed has recognized short-term U.S. Treasury bills, along with other high-quality and liquid assets, as examples of approved reserves. Full backing means the issuer must maintain assets equivalent to the tokens it has minted rather than depending on a limited set of reserves.
This draft will also introduce standardized capital requirements addressing credit and operational risks associated with payment stablecoins. Additionally, distinct risk-management criteria will be established to govern how issuers manage these processes. According to the Fed, this same proposal will set rules for organizations it oversees concerning the safeguarding of assets that support stablecoins.
For individuals in possession of U.S. tokens, the reserve regulations are applicable to the assets that back a stablecoin issued by a firm within the Fed’s jurisdiction. The proposal does not convert a payment stablecoin into an insured bank deposit. Its requirements specifically relate to the designated issuer and its reserve arrangements, while the Fed’s second proposal delineates a bank’s request to operate in this sector.
The initial draft will also clarify which stablecoin-related activities Fed-supervised banks are permitted to undertake. This provision will complement the issuer and reserve guidelines, offering banks a proposed regulatory framework for activities that go beyond merely establishing a subsidiary for stablecoin issuance.
Process for Banks Seeking Stablecoin Approval
The second proposal targets insured state member banks seeking Fed authorization for a subsidiary to issue payment stablecoins. As per the Fed’s application draft, the responsibility to submit the application lies with the bank rather than the proposed subsidiary.
Applicants must submit a business plan, financial information, and any other documentation that the Fed deems necessary to assess the proposed operation. The submission must detail the plan, articulate the approval that the bank seeks, and provide justification based on the criteria outlined in the GENIUS Act. The draft also outlines procedures for hearings, appeals, and final decisions.
Timeliness is critical in this bank proposal. The Fed will notify applicants within 30 days if the submission is substantially complete and will indicate additional information needed if it is not. Once the application reaches a substantial level of completeness, the GENIUS Act requires the Fed to issue a decision within 120 days; according to the law, a complete application is automatically approved if the Fed does not act within that timeframe.
Any major changes could affect this timeline. The Fed’s draft indicates that significant modifications to the proposed issuer’s business plan, ownership, or financial condition may require further information and a new application date. It is also seeking input on applications involving multiple banks in a stablecoin consortium, including whether a single submission could effectively address participating insured state member banks under certain circumstances.
This inquiry holds relevance within the backdrop of recent U.S. banking activities. On September 1, it was reported that Bank of America, Citi, Goldman Sachs, and 18 other financial entities pledged to establish a stablecoin initiative, as detailed in a September report about the banking consortium. The collective aims to launch a U.S. dollar token in the first half of 2027, emphasizing its commitment to comply with relevant GENIUS Act regulations. However, their publicly disclosed plan does not confirm that they will follow the Fed application route described in the current proposal.
Current Status of GENIUS Act Rulemaking
The Fed’s proposals align with rulemaking initiatives already underway at other U.S. agencies. In August, crypto.news reported on the Treasury’s proposed definitions regarding when payment stablecoins are issued, offered, or sold within the United States. Treasury’s inquiries address which activities are subject to U.S. licensing and distribution regulations, while the Fed’s revised drafts focus on regulated issuers and the applications from insured state member banks.
The Office of the Comptroller of the Currency (OCC) is also developing a separate framework for issuers under its jurisdiction. As noted in August, Comptroller Jonathan Gould aims to finalize OCC rules by November after considering industry feedback. Its proposal covers various issues, including reserves, redemptions, custody, supervision, and issuer applications. However, the OCC timeline does not provide completion dates for the Fed’s newly proposed regulations.
Treasury has suggested January 18, 2027, as the expected effective date for the key issuer restrictions under the GENIUS Act. The statute also permits an earlier implementation, occurring 120 days after the relevant federal agencies publish their final rules. Federal regulators missed the July 18, 2026, deadline for these final regulations, leaving several proposals at various stages of review.
Regarding the two Fed notices released on September 24, interested banks, issuers, and members of the public are encouraged to provide comments during the 60-day window following publication in the Federal Register. The application proposal presents several avenues for submitting responses, including the Fed’s online proposal system, mail, and email, all identified by its docket number.
