Federal Reserve Proposes Stablecoin Reserve and Capital Rules Under GENIUS Act

Fed Proposes Comprehensive Stablecoin Framework Under GENIUS Act

On Thursday, September 24, the Federal Reserve Board requested public input on two proposals that would move payment stablecoin issuers under its supervision to a regulatory structure resembling that of traditional banks. The proposals, issued under the authority of the GENIUS Act, mandate that issuers maintain a full reserve backed by eligible assets such as short-term Treasuries and other high-quality liquid assets, adhere to standardized capital and risk-management requirements, follow reserve-custody rules, and secure approval through a customized process that includes procedures for appeals, hearings, and decisions. The comment period will span 60 days following publication in the Federal Register.

Reserve, Capital, and Custody Requirements Detailed

The proposed framework directly addresses regulatory gaps identified in a Brookings Institution paper by Nellie Liang and Brent Neiman, who argued that strong capital and liquidity regulation is essential to ensure redemption at par and that reserves held in uninsured bank deposits should carry higher capital requirements than Treasury bills or cash. The GENIUS Act itself requires at least one-to-one backing with eligible reserves. Applicants seeking to issue stablecoins must submit a business plan alongside financial documentation as part of the approval system. These measures are critical both for banks planning to issue stablecoins and for the Treasury and regulators working to implement the law.

Barr Flags Potential Enforcement Tension in AML Proposal

Governor Michael S. Barr, while supportive of the reserve and capital measures, expressed concern about the AML component of the package. He tied the stablecoin proposals to the Fed’s July proposal to revise bank AML program requirements, which states that supervision and enforcement would focus on “significant failures” after a bank establishes an AML program. In his statement, Barr said:

I am concerned that the ‘significant or systemic’ standard may have unknown effects…

According to Barr, it remains unclear how such a “significant or systemic” threshold might impact the Fed’s capacity for action. This concern emerges as regulators expand stablecoin compliance requirements. In May, the FDIC encouraged applying AML, counter-terrorist-financing, and sanctions requirements to bank-affiliated stablecoin issuers. Liang and Neiman have also cautioned that if stablecoins bypass correspondent banking networks, U.S. sanctions and AML enforcement powers could be diluted unless issuers and wallet operators prevent illicit transactions.

Market Implications: Treasury Demand and Issuer Economics

The stablecoin market’s scale underscores the stakes. The Bank for International Settlements reported a total market value of about $300 billion in 2026, with 98% denominated in U.S. dollars. Brookings estimated the market at roughly $270 billion in June, while S&P Global Market Intelligence projects growth to $434 billion by 2028 from $269 billion in 2025, driven by cross-border payments, treasury management, and capital-market tokenization. Brookings noted that reserve flows into Treasury bills may boost demand for short-term U.S. securities, though the net effect depends on what drives stablecoin reserve growth. Stricter capital and custody rules could raise compliance costs and barriers for new entrants. The ripple effects extend beyond issuers: IMF analysts found that existing payment companies lost 1.3% (approximately $21.5 billion) of market value relative to other financial firms during the pivotal GENIUS Act vote, with cross-border firms more severely affected. Accounting for anticipated effects, losses could reach 13% to 27% (roughly $220 billion to $470 billion).

Why This Matters

The Federal Reserve’s proposals represent the most concrete federal step yet to bring payment stablecoins into the regulatory perimeter, translating the GENIUS Act’s statutory mandates into operational rules for supervised institutions. The reserve and capital framework aims to eliminate the run-risk and redemption uncertainties that have plagued the sector, while the approval process creates a gatekeeping mechanism for bank-affiliated issuers. However, Governor Barr’s dissent on the AML threshold highlights a structural tension: a supervision model calibrated for “significant or systemic” failures may be ill-suited for the high-velocity, pseudonymous transaction flows characteristic of stablecoin networks. Internationally, the BIS has warned that fragmented regulation invites arbitrage, and the Treasury’s January 18, 2027 effective date—or an earlier trigger 120 days after final rules—pressures agencies to finalize standards quickly. Meanwhile, the market’s dollar dominance (98% USD-denominated) means U.S. rulemaking effectively sets global norms for the largest segment of crypto-based value transfer.