Nikolas Sargeant
TL;DR
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The Federal Reserve proposed requiring payment stablecoins to be fully backed by short-term Treasury bills or other highly liquid assets.
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Issuers would face standardized capital requirements and additional risk-management standards.
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Banks supervised by the Federal Reserve would receive a dedicated application process for issuing payment stablecoins.
The Federal Reserve has proposed new reserve, capital, and risk-management requirements for payment stablecoin issuers as US regulators move closer to implementing the country’s federal stablecoin law.
Under the proposal released Thursday, issuers would have to fully back their tokens with short-term US Treasury bills or other highly liquid assets.
The central bank also wants to establish standardized capital rules and a formal application process for Federal Reserve-supervised banks seeking to issue stablecoins.
The measures are not yet final. They form part of the regulatory work required under the GENIUS Act, which President Donald Trump signed into law last year and which is scheduled to take effect in January 2027.
Stablecoins Would Require Fully Liquid Reserves
The Federal Reserve’s proposal would require payment stablecoin issuers to maintain reserves equal to the value of their outstanding tokens.
Eligible backing would include short-term Treasury bills and other assets considered highly liquid. Such assets can generally be converted into cash quickly without experiencing a large decline in value.
Full reserve backing is intended to ensure that holders can redeem stablecoins for their stated dollar value, including during periods of heavy withdrawal demand.
Stablecoin issuers typically earn revenue by investing customer funds in government debt and other reserve assets. The difference between the interest earned on those holdings and the cost of operating the product can become a significant source of profit.
Allowing only short-duration and liquid assets reduces the risk that an issuer would need to sell long-term or volatile investments at a loss to meet redemptions.
The proposal could also limit how issuers pursue yield. Higher-returning assets generally involve greater credit, duration or liquidity risk, making them less suitable for tokens marketed as cash equivalents.
The Fed did not provide a complete list of eligible reserve assets in the summary, and the final details will determine how much flexibility issuers retain.
Fed Proposes Standardized Capital Requirements
Stablecoin reserves are intended to cover customer redemptions, while capital provides a separate financial cushion against operational losses and other risks.
The Federal Reserve wants issuers to meet standardized capital requirements rather than relying on company-specific practices. It also proposed broader standards for managing the risks associated with stablecoin operations.
Those risks may include cybersecurity incidents, technology failures, fraud, liquidity shocks, and problems involving custodians or other service providers.
Standardized requirements could make it easier for regulators and customers to compare issuers. They may also prevent companies from operating with insufficient resources simply because their tokens are fully reserved.
The appropriate capital level remains an important policy question. Requirements that are too low may fail to protect customers, while overly burdensome standards could limit competition and make stablecoin issuance practical only for the largest financial institutions.
The Federal Reserve’s proposal will likely receive feedback from banks, cryptocurrency companies, and consumer-protection groups before the rules are finalized.
Banks Would Receive a Stablecoin Application Process
The proposed framework creates a specific application procedure for banks supervised by the Federal Reserve that want to issue payment stablecoins.
A formal process would give banks clearer instructions about the information and controls they must demonstrate before receiving approval.
Regulators could examine a bank’s reserve arrangements, technology, governance, cybersecurity protections, redemption systems and compliance program as part of the review.
Banks have historically faced uncertainty over whether and how they can participate in stablecoin markets. A dedicated application route could encourage more institutions to develop products by replacing informal supervisory negotiations with published standards.
Approval would not necessarily be automatic. Applicants would still need to show that their proposed stablecoin could operate safely and comply with the GENIUS Act and other banking laws.
The framework could also affect competition between bank and nonbank issuers. Both may issue regulated stablecoins, but they could remain subject to different supervisory structures depending on their charters.
The GENIUS Act established the first comprehensive federal framework for payment stablecoins in the United States.
The law requires stablecoins to be fully backed by US dollars or similarly liquid assets. It also mandates annual audits and creates rules governing who may issue the tokens.
Federal regulators have been developing the detailed regulations needed to put those statutory requirements into practice.
Michael Barr Raises AML Enforcement Concerns
Federal Reserve Governor Michael Barr supported issuing the proposal but raised concerns about its treatment of anti-money-laundering compliance.
Barr focused on a standard that could prevent the Fed’s board from taking supervisory or enforcement action over an AML deficiency unless the problem qualifies as “significant or systemic.”
He said a similar threshold appeared in the board’s July proposal and warned that its effects remain uncertain.
“I am concerned that the ‘significant or systemic’ standard may have unknown effects on the Board’s ability to effectively substantiate that an institution establishes and maintains compliant programs,” Barr said.
His concern is that requiring regulators to prove an issue is sufficiently serious before acting could make it harder to address weaknesses early. Smaller deficiencies can become more consequential if they remain unresolved or appear across several parts of an institution.
Stablecoins can move rapidly across borders and blockchain addresses, making AML controls an important part of the regulatory framework. Issuers and banks may need systems for customer verification, transaction monitoring, and sanctions compliance.
