Fed Proposal Favors Big Banks in Stablecoin Regulation

The Federal Reserve has proposed rules for banks to issue stablecoins under the GENIUS Act. These rules favor larger Wall Street banks, which can absorb compliance costs, over crypto-native firms that built the market.

The Fed's proposal sets a 2% operational-risk capital charge on an issuer's first $20 billion in stablecoins outstanding, decreasing to 1.5% for the next $30 billion and 1% above $50 billion. This means larger banks with balance sheets like Wells Fargo's will have lower marginal charges than smaller issuers.

The Fed is the last major regulator to weigh in on stablecoins, following the OCC and FDIC's proposals earlier this year. The GENIUS Act requires non-permitted issuers to become unlawful by January 18, 2027. This gives banks a concrete deadline and rulebook for entering the market.

Tether and Circle, major players in the stablecoin market, will need to adapt to these new rules. Fed Governor Michelle Bowman wants tougher capital and diversification standards to keep the playing field level between Wall Street and crypto-native firms, but the current proposal favors those with cheaper capital.