Federal Reserve Proposes GENIUS Act Stablecoin Rules
The Federal Reserve issued two proposals under the GENIUS Act to regulate payment stablecoins. The rules would require full asset backing for tokens and establish a new application process for banks seeking to issue them.
The Federal Reserve released two proposed rules on September 24 to implement the GENIUS Act, creating the first federal framework for payment stablecoins issued by supervised banks. The central bank is now seeking public comment on the proposals, which cover reserve backing and a new approval process for bank subsidiaries.
One proposal requires Board-supervised payment stablecoin issuers to fully back their tokens with permitted reserve assets. This means holding assets against every issued token, not relying on a smaller reserve pool. The Fed identified short-term U.S. Treasury bills and certain other high-quality, liquid assets as examples of eligible reserves. The draft also introduces standardized capital requirements to address credit and operational risks associated with stablecoin activities.
Second proposal outlines bank application process for stablecoin subsidiaries
The second proposal applies specifically to insured state member banks seeking Federal Reserve approval for a subsidiary to issue payment stablecoins. It establishes a tailored application process governing appeals, hearings, and final determinations.
Under this proposal, the bank itself is the applicant and must file with its appropriate Federal Reserve Bank. The application must describe the business plan, state the approval sought, and explain why it should be granted under GENIUS Act factors. Applicants must submit a business plan, financial information, and other material the Fed needs to assess the proposed operation.
The Fed would notify an applicant within 30 days whether the filing is substantially complete. Once complete, the GENIUS Act gives the Fed 120 days to decide. A complete application is deemed approved if the Fed does not decide within that period. The draft notes that a substantial change to a proposed issuer’s business plan, ownership, or financial condition may require more information and reset the submission timeline.
The proposal also asks for public comment on applications involving multiple banks in a stablecoin consortium, including whether a single filing could cover all participating insured state member banks.
Federal Reserve seeks public comment on both proposals
The Federal Reserve Board is seeking public input on two proposals that would establish a regulatory framework for payment stablecoin issuers under its supervision. One sets operating requirements for issuers and firms holding reserves. The other sets out how insured state member banks apply to issue stablecoins through a subsidiary.
The 60-day comment period begins when the formal notices are published in the Federal Register. The Fed has not set a calendar deadline for finalizing the rules. The proposals remain open to revision based on the feedback received.
Federal Reserve Board Governor Michael S. Barr said public input will be useful on whether the rule adequately addresses interest rate and foreign currency risks. He stated his support for the proposed restrictions on reserve assets and the use of transparent, standardized capital requirements. Barr added that while the board’s proposal is an important step in GENIUS Act implementation, further work will undoubtedly be required if stablecoins are to be reliable payment instruments.
The publication of the proposals was approved in unanimous board votes. Public comments are due 60 days after the proposals appear in the Federal Register.
