Fed Proposes GENIUS Act Stablecoin Rules

The Federal Reserve has proposed two GENIUS Act stablecoin rules for payment stablecoins. The proposals cover reserve assets, capital standards, operational risk controls, rewards and bank-issued stablecoins. Fed-supervised issuers would need to fully back payment stablecoins with permitted reserves, including short-term US Treasury bills and other high-quality liquid assets. Firms safeguarding reserves would also face management standards. The stablecoins would not qualify as insured bank deposits. Certain third-party reward arrangements may be presumed to breach the GENIUS Act’s ban on interest or yield, potentially limiting incentives to narrow, credit-card-style rewards. A second proposal would govern insured state member banks seeking to issue stablecoins through subsidiaries. Applicants would submit business plans, financial data and risk-management policies to their regional Federal Reserve Bank. The Fed would generally have 120 days to decide once an application was substantially complete, although major changes in ownership, financial condition or business plans could restart the review period. The GENIUS Act stablecoin rules will be open for public comment for 60 days after Federal Register publication. They form part of broader US stablecoin regulation alongside proposals from the Treasury Department, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. For traders, the framework could strengthen confidence in reserve quality and institutional participation over the long term, while raising compliance costs, limiting eligible issuers and reducing demand for yield-bearing stablecoin products.