Fed Proposes Stablecoin Reserve and Capital Rules Under GENIUS Act

The Federal Reserve has proposed two rulebooks for banks issuing stablecoins under the GENIUS Act. The first proposal sets reserve and capital requirements, while the second outlines how to apply to issue a stablecoin. Banks would have to hold at least one dollar of permissible reserves for every dollar of stablecoin outstanding, with a 2% capital charge on the first $20 billion in stablecoins and a sliding scale thereafter.

The Fed's proposal gives issuers a two-business-day window to process redemptions, reconciling the promise of instant settlement on the blockchain with regulatory buffer underneath. A bank wanting to launch a Fed-supervised stablecoin would have to submit a business plan and financial disclosures, and the Fed has built out a formal appeals and hearings process for when an application gets denied.

The SEC's guidance categorically excludes payment stablecoins issued under the GENIUS Act from the definition of a security. The tougher capital and diversification standards proposed by Fed Governor Michelle Bowman aim to keep the playing field level between Wall Street banks and crypto-native firms, but this is still an unresolved issue in Congress.