Federal Reserve Proposes New Capital and Redemption Rules for Stablecoin Issuers

Key Provisions of the Federal Reserve's Proposal

The Federal Reserve's proposal imposes an operational-risk capital charge on stablecoin issuers: 2% on the first $20 billion of stablecoins outstanding, 1.5% on the next $30 billion, and 1% on amounts exceeding $50 billion. Additional capital requirements address credit and operational risks.

Issuers would be generally required to process redemptions within two business days. If reserves fall below the mandated one-to-one backing, issuers must notify the Fed and either replenish reserves via a remediation plan or liquidate assets to redeem outstanding stablecoins.

Issuers must publish monthly reports disclosing their total stablecoin liabilities and the composition and value of reserves. These disclosures are subject to audit by a registered public accounting firm and must be certified by the issuer’s CEO and CFO.

Application Process and Bank-Related Rules

A separate proposal outlines an application process for Fed-supervised banks wishing to issue payment stablecoins through subsidiaries. These banks must submit detailed business plans and financial disclosures to gain approval.

The proposals are open for public comment for 60 days following publication in the Federal Register.

Statements from Fed Governor Michael Barr

Fed Governor Michael Barr expressed support for the proposal while emphasizing the need for further efforts to establish stablecoins as reliable payment methods.

Barr noted that stablecoins can only remain stable if they are reliably and promptly redeemable at par under varying conditions, including market stress and issuer-specific strains.

He welcomed the proposed limitations on reserve assets and uniform capital standards, inviting public feedback on whether the framework sufficiently addresses interest-rate and foreign currency risks.

Barr also stressed that universal redemption rights should be clearly defined in the final rule and voiced concerns about a standard potentially limiting the Fed’s supervisory or enforcement actions regarding anti-money laundering deficiencies unless considered significant or systemic.

Context and Effective Dates of GENIUS Act Implementation

The GENIUS Act, a pivotal regulatory framework for the stablecoin market, is scheduled to take effect on January 18, 2027, or 120 days after federal regulators issue final implementing rules, whichever comes first.

Its objective is to enhance the transparency, resilience, and accountability of stablecoin issuers, mitigating systemic risk exposures within the broader financial system.