Fed Proposes Stablecoin Regulations with Full Reserve Backing Requirement

The Federal Reserve has proposed two new rulemaking packages for payment stablecoin issuers under the GENIUS Act. The proposals aim to regulate the issuance of regulated stablecoins, ensuring they are backed by high-quality assets and meet standardized capital requirements.

Under the first proposal, Board-supervised payment stablecoin issuers would need to fully back their outstanding tokens with permitted reserve assets, such as short-term Treasury bills. The Fed also wants to establish standardized capital requirements for firms safeguarding stablecoin reserve assets and risk-management standards for credit and operational risks.

The second proposal deals with the entry point for banks seeking to issue payment stablecoins. Board-supervised banks would need to submit an application, including a business plan and financial information, and undergo a dedicated application process. The framework would also create formal processes for decisions, hearings, and appeals.

The proposals are not final rules yet, with a 60-day public comment period ahead. Governor Michael Barr backed the direction of the proposal while emphasizing the need for clear redemption rights and strong safeguards.