Fed Proposes Stablecoin Reserve and Capital Rules Under the GENIUS Act
WASHINGTON — The Federal Reserve moved the United States closer to a working rulebook for payment stablecoins Thursday, requesting public comment on two proposals under the GENIUS Act. The measures address the assets issuers must hold, the capital and risk controls expected of bank-supervised firms, and the process for a bank to seek permission to create an issuing subsidiary. Comments will be due 60 days after publication in the Federal Register.
Stablecoins are digital tokens designed to maintain a steady value, most commonly one U.S. dollar. Their usefulness depends on whether holders believe they can redeem tokens promptly at that value. The GENIUS Act established a federal framework in 2025 after years of debate, but legislation alone could not specify every operational standard. Banking regulators now have to translate the law into requirements that can be examined and enforced.
The first Fed proposal would require full backing with permissible reserve assets. The central bank highlighted short-term Treasury securities and other high-quality liquid assets, reflecting a simple principle: money promised on demand should not be backed by investments that may be difficult to sell during stress. The plan also covers capital, liquidity, governance, risk management and the safekeeping of reserve assets.
A second proposal would create a tailored application process for a state member bank seeking to establish a subsidiary as a permitted payment stablecoin issuer. It would also clarify the process for banks engaging in certain related activities. The distinction matters because issuing a token creates different risks from merely holding reserves, processing payments or providing custody services.
For banks, the opportunity is access to a payment technology that can settle quickly and operate beyond traditional banking hours. The risk is that a token can face a run at digital speed if customers doubt the backing or legal protections. Reserve quality, redemption rights and operational resilience are therefore not peripheral compliance issues. They determine whether the product behaves like reliable payment money or a fragile investment during a crisis.
Fed Governor Michael Barr voted for releasing both proposals but said the framework should include strong redemption rights and robust anti-money-laundering measures. His statement is a reminder that reserve backing solves only part of the problem. Regulators must also consider illicit-finance controls, technology failures, cybersecurity, consumer disclosures and the legal treatment of customers if an issuer enters bankruptcy.
The business model can be attractive because issuers may earn interest on reserve assets while token holders receive a payment instrument rather than that interest. Associated Press reporting on the law noted that this spread is a central source of stablecoin revenue. When interest rates are high, it can be substantial. Competition may eventually push companies to share more value with users, but regulators will be watching for incentives to chase yield by taking greater reserve risk.
The proposals could also change competition between banks and crypto-native firms. A clear federal pathway may encourage established financial institutions to enter the market, bringing compliance systems and large customer bases. Smaller innovators may argue that heavy capital and application requirements protect incumbents. The final balance will determine whether the framework produces a diverse payments market or concentrates issuance among a few well-resourced companies.
Businesses considering stablecoin payments should not treat the proposals as final law. The comment process can change definitions, calculations and implementation timelines. Companies should focus on practical questions: who has a direct redemption claim, what assets back the token, how reserves are reported, which regulator supervises the issuer and what happens when a transaction is disputed. A dollar label does not make every token legally or operationally identical.
The Fed's action is an important step because it moves the debate from slogans about crypto innovation toward the machinery of supervision. The strongest final rules will allow useful payment products without pretending that liquidity, custody and run risk disappeared when money moved onto a blockchain. For the industry, public comments are the next contest. For customers, the eventual test will be simpler: whether one digital dollar remains worth one dollar when confidence is under pressure.
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