- The Federal Reserve Board on 24 September released two GENIUS Act proposals for the stablecoin issuers it supervises, open for 60 days of comment once published in the Federal Register.
- Issuers would hold operational-risk capital of 2% on the first US$20 billion of tokens outstanding, falling to 1% above US$50 billion.
- Governor Michael Barr backed the proposal but said the final rule must make universal redemption rights clear, and flagged concerns over a proposed limit on anti-money laundering enforcement.
Stablecoin issuers supervised by the Federal Reserve would have to back every token with cash, short-dated Treasuries and similar liquid assets and hold capital against operational and credit risks under rules the Fed’s Board proposed on Thursday to implement the GENIUS Act.
The rules cover subsidiaries of state member banks that the Fed approves to issue payment stablecoins and uninsured state-chartered issuers with US$10 billion (AU$14.2 billion) or more in tokens outstanding that move under Fed oversight.
A second proposal sets out how those banks apply for approval, which the Act requires the Fed to decide within 120 days of a complete application. Both are open for 60 days of comment once published in the Federal Register.
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Reserves, Capital and Redemption
Reserves would have to match or exceed the par value of tokens in circulation at all times and be limited to U.S. dollar cash, Federal Reserve balances, demand deposits, Treasuries maturing within 93 days, overnight repo backed by Treasuries and tokenised versions of some of those assets.
An issuer that falls short must notify the Fed, then liquidate reserves and redeem tokens unless the Board approves a plan to restore full backing.
Operational-risk capital would run at 2% of the first US$20 billion (AU$28.4 billion) of tokens outstanding, 1.5% of the next US$30 billion (AU$42.6 billion) and 1% above US$50 billion (AU$71 billion), plus 25% of the issuer’s three-year average revenue from sources other than its reserves.
An issuer still below its capital minimum after a second quarter-end would have to wind down.
Issuers would publish a redemption policy paying out within two business days and file confidential weekly reports on issuance, redemptions and reserves.
The proposal also applies the Act’s ban on paying yield for simply holding a stablecoin, and presumes certain third-party arrangements breach it, matching the approach the OCC proposed.
Barr Flags Redemption Rights
Governor Michael Barr backed the proposal in a statement and sought input on whether it covers interest rate and foreign currency risk.
“Stablecoins will only be stable if they can be reliably and promptly redeemed at par in a range of conditions”, Barr stated. He also said universal redemption rights must be clear in the final rule, and flagged concern over a provision barring the Fed from acting on an issuer’s anti-money laundering lapse unless it is significant or systemic, saying it may have unknown effects on the Board’s ability to check compliance.
The OCC, FDIC and NCUA have issued their own GENIUS Act proposals, including the FDIC’s bank-subsidiary application process in December, and the Treasury opened comment on a proposal of its own in August. The Act takes effect on 18 January, 2027, or 120 days after regulators finalise implementing rules, whichever comes first.
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