Fed's Stablecoin Rules Favor Wall Street Banks Over Crypto-Natives

The Federal Reserve has proposed two rules for banks to issue stablecoins under the GENIUS Act, but they favor big Wall Street banks over crypto-native firms. The rules require issuers to back every token with high-quality assets such as cash or short-term Treasury bills, and set a 2% operational-risk capital charge on the first $20 billion in stablecoins outstanding.

The capital math is skewed towards large institutions like JPMorgan or Citi, which can absorb the compliance costs. The charge drops to 1.5% on the next $30 billion and down to 1% on anything above $50 billion. This means smaller issuers will face a higher marginal charge.

Fed Governor Michelle Bowman wants tougher capital and diversification standards, but this proposal already tilts towards Wall Street banks. Circle, one of the largest stablecoin issuers, operates within U.S. banking rules through its own structure, but the capital charge tiers are not designed for companies like it.

Michael Barr, another Fed governor, criticized the GENIUS Act's guardrails and pushed for a rule preventing the Board from taking supervisory or enforcement action unless an anti-money-laundering gap is significant or systemic.