Fed Unveils GENIUS Act Stablecoin Reserve and Capital Rules

The Federal Reserve has opened public comment on two proposed rules to implement the GENIUS Act for payment stablecoin issuers it supervises. The proposals, released Thursday in a press release, would require board-supervised payment stablecoin issuers to fully back their stablecoins with certain permissible reserve assets and establish standardized capital requirements.

The first proposal aims to introduce risk management standards and clarify the permissibility of stablecoin and related activities for board-supervised banks. Michael S. Barr said the proposal would be useful for public input on reserve asset limitations and capital requirements, and he emphasized that it should address interest rate and foreign currency risks.

The second proposal establishes a tailored application process for board-supervised banks applying to issue payment stablecoins and creates a process governing appeals, hearings, and final determinations for applications. The Fed will accept comment on the proposals for 60 days after their publication in the Federal Register, which was approved in unanimous board votes.

The proposed framework for Fed-supervised issuers would require holding at least one dollar of permissible reserve assets, including short-term Treasury bills and other high-quality liquid instruments, for every dollar of stablecoin outstanding. The Fed also proposed a sliding scale capital charge, including a 2% capital charge on an issuer's first $20 billion in outstanding stablecoins and a 1% charge on amounts above $50 billion.

Stablecoins must be reliably and promptly redeemed at par, according to the proposal, which ties the framework to stress conditions. If reserves fall below the required one-to-one backing, an issuer would have to notify the Fed and either restore reserves under a remediation plan or liquidate them and redeem outstanding stablecoins.