The Federal Reserve has proposed reserve-asset limits, capital requirements and a formal approval process for banks that want to issue payment stablecoins, moving the United States closer to a functioning federal regime under the GENIUS Act before the law takes effect in January 2027.
The draft framework would require payment stablecoin issuers supervised by the Fed to maintain full backing in short-term U.S. Treasury bills or other highly liquid reserve assets. It also sets proposed capital standards designed to cover the operational, legal and financial risks involved in issuing digital dollars, including the risk that an issuer may face sudden redemption demands.
For board-supervised banks, the proposal creates a dedicated application process before they can begin issuing payment stablecoins. That requirement would place stablecoin issuance under an explicit supervisory gate rather than allowing banks to treat it as a routine extension of deposits or payments services.
The measures form part of regulators’ implementation of the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS Act, which President Donald Trump signed into law in 2025. The legislation requires payment stablecoins to be backed by U.S. dollars or similarly liquid assets and requires issuers to undergo annual audits.
Reserve rules bring operational detail to the GENIUS Act
The GENIUS Act established the central principle of full reserve backing, but the Federal Reserve’s proposal begins to define how that principle would work for the banks under its supervision. Restricting reserves to short-dated Treasuries and comparable liquid instruments would limit an issuer’s ability to seek higher returns through longer-term bonds, corporate debt or less easily sold assets.
That choice addresses the basic stress scenario for any redeemable stablecoin: many holders seeking dollars at once. Short-term government securities generally have a deep market and limited price volatility compared with riskier credit instruments, giving issuers more capacity to meet redemptions without selling assets at steep losses.
The proposed capital requirements add a separate buffer beyond customer reserves. A stablecoin’s reserve assets are meant to match outstanding tokens, while regulatory capital is intended to absorb losses from the issuer’s own business operations. The distinction could become especially relevant if an issuer suffers fraud, technology failures, legal liabilities or losses related to service providers.
The Fed did not frame the proposal as a final rule. The agency’s process will include public comment and further deliberation, leaving banks and prospective issuers without final compliance specifications for now. Regulators missed an initial July deadline for elements of the GENIUS Act’s rulemaking, though the statute itself is not scheduled to take effect until January 2027.
Banks would need specific approval to issue tokens
The application process gives the Federal Reserve a direct mechanism to assess whether a board-supervised bank has the risk controls, management systems and financial capacity to issue a payment stablecoin safely. That scrutiny could shape which institutions enter the market and the types of products they offer.
A bank considering issuance would need to account for more than reserve management. Stablecoin operations depend on systems for minting and redeeming tokens, monitoring blockchain transactions, safeguarding private keys and managing relationships with custodians, payment partners and technology vendors. Failures in any of those areas could interfere with redemptions even if reserve assets are sufficient on paper.
The approach also places stablecoin issuance closer to traditional prudential banking standards. Banks already operate under capital and liquidity requirements, but a payment stablecoin creates an additional form of on-demand liability that can move across public blockchain networks outside conventional banking hours. The Fed’s proposal treats that feature as a distinct supervisory issue.
Barr raises concern over anti-money laundering language
Federal Reserve Governor Michael Barr supported the stablecoin proposal but raised objections related to the Board’s treatment of anti-money laundering deficiencies in bank supervision.
Barr pointed to a proposed standard under which the Board could not take supervisory or enforcement action over an anti-money laundering deficiency unless the problem was considered “systemic.” He said that threshold could limit the Board’s ability to establish that an institution has created and maintained a compliant anti-money laundering program.
His comments referred to similar wording in a Federal Reserve proposal released in July. The issue sits alongside the stablecoin framework because banks that issue or support tokenized dollars could face transaction-monitoring challenges across blockchain networks, including activity involving wallets and intermediaries outside their direct customer base.
The GENIUS Act’s reserve and audit requirements address the financial side of stablecoin issuance, while anti-money laundering controls focus on how issuers identify customers, monitor suspicious activity and comply with financial-crime rules. Barr’s remarks suggest those two areas may remain politically and operationally linked as the Fed finalizes its broader approach.
A market dominated by Tether and Circle faces a changing rulebook
According to blockchain data platform DefiLlama, the stablecoin market was valued at roughly $306 billion in late September 2026. Tether’s USDT represented close to 60% of supply, while Circle’s USDC accounted for about 25%, leaving a relatively small share for bank-issued tokens and other competitors.
The Fed’s proposal does not immediately alter the structure of that market. Its immediate focus is on institutions supervised by the Board, and the final rules will depend on the outcome of the rulemaking process. Yet the framework gives banks a clearer route into a segment largely led by specialized stablecoin companies.
That could increase pressure on issuers to make reserve disclosures easily comparable. Monthly reserve reports already provide a practical view of an issuer’s asset mix, including cash, Treasury holdings, repurchase agreements and other instruments. Under a federal regime built around liquid backing, the composition and maturity of those reserves would become more consequential than headline supply alone.
The proposal also reinforces the likely role of Treasury bills in regulated stablecoin reserves. If bank issuers enter at scale, stablecoin demand could add to institutional demand for very short-dated government debt. The effect on yields would depend on issuance volumes, reserve rules adopted by other regulators and Treasury’s own supply decisions, but the direction of the Fed’s proposal favors government-backed liquidity over higher-yielding private credit.
To understand how these new Fed rules fit wider US policy, explore why the GENIUS Act matters.
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