Fed Unveils Proposed Rules for Bank-Issued Payment Stablecoins, Calls for 1:1 Reserves

The U.S. Federal Reserve has released a proposal to regulate payment stablecoins issued by banks, aiming to ensure each dollar token is backed at least 1:1 by approved reserve assets and that customer redemptions are generally completed within two business days. Under the draft, issuers that repeatedly fail to meet minimum capital standards could be ordered to liquidate reserve assets and redeem all outstanding tokens. If reserves ever fall short of full backing, issuers would have to notify the Fed and promptly restore coverage or unwind reserves and redeem the dollar-pegged tokens. The Fed outlined eligible reserve assets including U.S. dollars, Federal Reserve bank balances, certain bank deposits, U.S. Treasury securities with remaining maturities of 93 days or less, qualified repurchase agreements, and eligible investment funds. Tokenized versions of some of these assets could also qualify. On capital requirements, the proposal would require standardized capital to cover operational risk and certain credit risks, including a 2% capital charge on the first $20 billion of outstanding stablecoins and a 1% charge on amounts above $50 billion. A separate proposal would allow insured state member banks to apply to form subsidiaries that issue payment stablecoins. Under the GENIUS Act, once an application is deemed substantially complete, the Fed would be required to issue a decision within 120 days. Federal Reserve Governor Michael Barr said stablecoins must be redeemable at par reliably and quickly across a range of market conditions, including periods when issuers face stress, and argued that final rules should clearly establish a universal right to redemption. He also raised concerns about a threshold that would require "material or systemic" anti-money-laundering deficiencies before supervisory or enforcement action is triggered. The proposal will be open for public comment for 60 days after it is published in the Federal Register.