Fed Proposes Full Backing and Capital Rules for Payment Stablecoin Issuers

Key Facts

The Federal Reserve on September 24, 2026 proposed two sets of rules for payment stablecoin issuers under its supervision, implementing parts of the GENIUS Act. The first would require reserve assets to cover outstanding coins at least 1:1 at all times and would set capital and risk management standards. The second would create an application route for banks seeking to issue the tokens through subsidiaries. Both proposals are open for comment and are not yet final rules. Their potential reach extends beyond issuers to firms that safeguard reserve assets and to supervised banks weighing an entry into stablecoin issuance.

Under the reserve proposal, the fair value of eligible assets must equal or exceed the face value of outstanding payment stablecoins. Eligible holdings include U.S. dollar cash, balances at Federal Reserve Banks, qualifying deposits payable on demand, and Treasury securities with no more than 93 days remaining to maturity. Certain repurchase arrangements, funds invested only in eligible assets, and tokenized versions of some eligible assets could also qualify. Issuers would have to keep reserves separate from their other assets. An issuer therefore could not satisfy the proposed rule merely by pointing to enough assets on its balance sheet if those assets were ineligible or not segregated.

The backing requirement connects each outstanding coin to assets available to meet redemption requests. Aggregate reserve value alone, however, does not address deposits concentrated at one bank or exposure to one counterparty in reverse repurchase agreements. The Fed therefore proposed diversification standards designed to preserve full backing even during stress. It also proposed a disclosed redemption policy that generally allows no more than two business days for redemption. For holders, those provisions address related but distinct questions: whether sufficient assets exist and whether the issuer can turn them into funds when redemption is requested.

Capital addresses risks that remain even when reserves fully cover the coins in circulation. The Fed proposed a 2% capital charge on uninsured deposit claims and reverse repurchase agreements that are not fully collateralized. That charge reflects potential losses on particular reserve holdings, including holdings that otherwise fall within an eligible asset category. A separate operational risk charge would cover activities such as issuing and redeeming coins and managing reserves. The mix of reserve assets could therefore change an issuer's capital burden, while the scale of issuance would create an additional requirement of its own.

The operational risk charge would rise by tier: 2% on the first $20 billion of outstanding coins, 1.5% on the next $30 billion and 1% above $50 billion. Another charge would equal 25% of the 3-year average of annual revenue from activities unrelated to reserve assets. That component captures operations, such as custody services, whose risks are not measured by outstanding issuance alone. A further adjustment would move the operational requirement up or down with realized operational losses. Together, the components show why the proposal cannot be reduced to a single capital percentage that affects every issuer identically.

The second proposal sets out how an insured state member bank would apply to issue payment stablecoins through a subsidiary. Its application would include a business plan, financial information, policies, procedures, capital structure documents, biographical reports and specified certifications. The proposed process also covers decisions, appeals of denials and hearings. Separately, the first proposal would establish rules for Fed-supervised firms that safeguard assets backing the coins. For a bank considering issuance, the decision would thus involve both approval for the subsidiary and the custody and risk controls supporting its proposed operations.

Congress enacted the GENIUS Act in 2025 to establish a federal framework for payment stablecoins, while the Fed's proposals address responsibilities within its own jurisdiction. Fed-supervised issuers include approved subsidiaries of insured state member banks and certain state-qualified, uninsured depository institutions that reach $10 billion in outstanding coins and transition to Fed oversight. Other federal regulators have issued proposals for institutions they supervise. The Act takes effect on January 18, 2027, or 120 days after the primary federal regulators issue final implementing rules, whichever comes first. The practical effect of this step therefore depends on the institution involved and on the final rules that follow public comment.

The draft also limits the activities a Fed-supervised issuer could conduct, focusing on issuance, redemption, custody and activities that directly support them. It implements the statutory bar on paying interest or yield solely for holding, using or retaining a payment stablecoin. Proposed standards also cover technology security, management, anti-money laundering and sanctions compliance. For an investor assessing an issuer's business model, these provisions bear on possible revenue, operating costs and disruption risk as well as reserve quality. They do not imply identical compliance costs across issuers, whose activities, assets and operating arrangements can differ.

The Fed proposed confidential weekly reports on issuance, redemptions, trading volume and reserve assets for each coin, alongside quarterly financial reports. Its memorandum generally envisages a full examination of supervised issuers at least once every 12 months, with longer intervals possible under specified conditions. Those requirements would connect continuing oversight to changes in reserves and outstanding coins, rather than leaving the licensing decision as the only review point. The draft also specifies consequences for a capital shortfall at a quarter-end, starting with a plan to restore compliance. If the shortfall persists through the next quarter-end, the issuer would have to liquidate reserves and redeem outstanding coins.

Comments on the proposals will close 60 days after their publication in the Federal Register; the Fed's announcement did not give a calendar closing date. The final wording on reserve diversification, capital and applications will be central to estimating compliance costs for different business models. Treatment of custody, redemption and routine supervision will also matter because the published proposals can still change. For holders, the key issues are the strength of backing assets and access to redemption under the disclosed policy. For issuers and banks considering entry, the next questions are the final obligations and when they take effect.