Fed’s Proposed Stablecoin Rules Put GENIUS Act’s Dollar Test to Work

The Fed Is Building a Stablecoin Rulebook Down to the Dollar

Stablecoins have spent years borrowing the language of money. Now the Federal Reserve is proposing rules that would make some issuers behave a lot more like tightly constrained financial utilities. Under proposals released Thursday to implement the GENIUS Act, Fed-supervised issuers would have to keep at least $1 of permissible reserve assets behind every $1 of payment stablecoins outstanding.

Issuers would need to honor redemptions within two business days and carry standardized capital against operational and certain credit risks. The kicker? Stay deficient on capital long enough, and the proposed rules call for liquidating all reserve assets and redeeming the outstanding stablecoins. That’s about as literal as “fully backed” gets.

Every Dollar Needs a Dollar Behind It

The mechanics are deliberately boring. Reserves could include U.S. dollars, Federal Reserve Bank balances, certain bank deposits, Treasury securities with 93 days or less remaining to maturity, qualifying repurchase agreements, and eligible investment funds. Tokenized versions of some permitted assets could also make the cut. Those reserves would have to remain separate from the issuer’s other assets.

If backing slips below one-to-one, then the issuer would have to tell the Fed. The issuer needs to liquidate reserves and redeem its U.S. dollar-pegged tokens unless it has a plan to restore full backing promptly and the Board directs it to follow that route. Redemption policies, meanwhile, would generally have to promise payment within two business days.

Alongside the backing, a product built around instant digital settlement would still get a two-business-day regulatory redemption window. The Fed also proposes capital charges ranging from 2% on the first $20 billion of outstanding stablecoins to 1% on amounts above $50 billion, alongside other capital requirements. If an issuer remains below its minimum capital requirement at the end of the following quarter, then it would have to liquidate its reserves and redeem its coins.

Banks Get a 120-Day Clock

A companion proposal lays out how insured state member banks could seek Fed approval for subsidiaries that issue payment stablecoins. Applicants would submit a business plan, financial information, policies, capital documentation and other materials. Financial projections would cover the first three years of operations.

Here’s where it gets interesting. Once an application is deemed substantially complete, the GENIUS Act gives the Fed 120 days to decide. If it doesn’t, then the application is deemed approved. The Fed also gets 30 days after receiving an application to tell the applicant whether it considers the filing substantially complete. That said, a material change, such as deteriorating finances or a materially altered business plan, could reset that 120-day clock.

Barr Wants Redemption Rights and Tougher AML Teeth

Fed Gov. Michael Barr backed the rulemaking while arguing that the final framework needs firm consumer protections. “Stablecoins will only be stable if they can be reliably and promptly redeemed at par in a range of conditions,” Barr said on Thursday, pointing specifically to market stress and trouble at individual issuers.

He also welcomed reserve limitations and standardized capital requirements but wants public feedback on whether the framework adequately handles interest-rate and foreign-currency risks. Barr remarked that “universal redemption rights” need to be clear in the final rule.

One provision left him less comfortable: requiring an anti-money laundering deficiency to be “significant or systemic” before the Fed undertakes supervisory or enforcement action. The proposal contains that threshold.

Public comments stay open for 60 days after publication in the Federal Register. The strange part is where stablecoins are ending up. Technology designed to move dollars at internet speed is picking up a rulebook filled with Treasury maturities, quarterly capital tests, and regulatory clocks measured in months.