Fed stablecoin proposal makes circulation a capital cost

What happened

The Federal Reserve proposed capital, redemption and reserve disclosure requirements for payment stablecoin issuers under its supervision on September 24 as part of implementing the GENIUS Act. The framework establishes operational-risk capital charges that scale with the size of stablecoin circulation.

Under the proposal, issuers face an operational-risk capital charge equal to 2% of the first $20 billion in stablecoins outstanding, 1.5% of the next $30 billion and 1% of amounts above $50 billion. Additional capital requirements apply based on credit and operational risks. This structure means that each dollar of new stablecoin issuance carries a direct capital cost, even if the issuer generates no revenue from activities beyond maintaining reserve assets.

A hypothetical issuer with $1 billion in circulation and no non-reserve revenue would face a $20 million baseline operational-risk capital charge. At $10 billion in outstanding stablecoins, that charge would rise to $200 million.

All stablecoins must be backed one-to-one by eligible reserve assets, including U.S. dollars, Federal Reserve balances, insured deposits, U.S. Treasuries maturing within 93 days and certain Treasury-backed repurchase agreements. Issuers must publish monthly reports detailing their outstanding stablecoins and the value and composition of their reserves, certified by the CEO and CFO and examined by a registered public accounting firm.

Issuers must process redemptions within two business days, with limited exceptions. If reserves fall below one-to-one backing, an issuer must notify the Fed and either restore reserves under a remediation plan or liquidate and redeem outstanding stablecoins.

A separate proposal establishes an application process for Fed-supervised banks seeking approval to issue payment stablecoins through subsidiaries. Applicants must submit a business plan, financial information and capital documentation. Both proposals are open for public comment for 60 days after publication in the Federal Register.

Why it matters

The capital structure creates a direct relationship between stablecoin issuance and capital requirements. Unlike traditional bank activities that generate revenue to offset capital costs, a stablecoin issuer earns nothing from holding reserve assets at par. The tiered charge structure encourages issuers to stay smaller within each band, since crossing a threshold to the next tier changes the rate applied only to additional issuance.

The framework differs from the Office of the Comptroller of the Currency's approach for issuers under its jurisdiction, which tailors capital amounts to each business and uses a separate pool of liquid assets tied to expenses. The Fed's uniform formula applies to all supervised issuers regardless of their specific business model.

Fed Governor Michael Barr stated that stablecoins can only remain stable if users can reliably redeem them at full value during market stress and when issuers face financial strain. The proposal addresses this through reserve backing and standardized capital requirements, though Barr called for public feedback on whether the framework adequately addresses interest-rate and foreign-currency risks.

The GENIUS Act is set to take effect on January 18, 2027, or 120 days after federal regulators issue final implementing rules, whichever comes first. These proposals represent the Fed's first detailed regulatory guidance for stablecoin issuers under the law.

What the data shows

Operational-risk capital charges:

First $20 billion in outstanding stablecoins: 2%

Next $30 billion in outstanding stablecoins: 1.5%

Amounts above $50 billion in outstanding stablecoins: 1%

Credit-risk capital charge on uninsured deposits and undercollateralized reverse repurchase agreements: 2%

Redemption window requirement: two business days

Public comment period: 60 days after Federal Register publication

Background

The GENIUS Act, formally the Guiding and Establishing National Innovation for US Stablecoins Act, was signed into law by President Donald Trump on July 18, 2025. The legislation established a federal framework for stablecoin regulation, moving oversight from a fragmented state-by-state system to coordinated federal guidance.

The law requires stablecoin issuers to maintain one-to-one reserve backing and limits eligible reserve assets to cash, bank deposits and short-term U.S. Treasuries. It delegated to federal regulators the authority to establish detailed capital, reserve-diversification and risk-management requirements. The Federal Reserve, the Office of the Comptroller of the Currency and the FDIC have all begun proposing implementing rules.

What is still unclear

• Whether the Fed will adjust the capital charge formula in response to public comment, particularly regarding treatment of interest-rate and foreign-currency risks.
• How the Fed's framework will interact with separate guidance from the OCC and FDIC for issuers under their respective jurisdictions, and whether final rules will harmonize the different approaches.
• Whether the one-to-one reserve requirement and capital charges will be sufficient to ensure stablecoin stability during periods of market stress and redemption pressure.

What to watch

• 2027-01-18 The GENIUS Act takes effect on January 18, 2027, or 120 days after federal regulators issue final implementing rules, whichever comes first.

Questions readers ask

Sources

1. 1 CointelegraphFed proposes new capital, redemption rules for stablecoin issuers · 24 Sep, 22:10 UTC
2. 2 Crypto DailyFed Proposes Reserve and Capital Rules for Stablecoin Issuers Under GENIUS Act · 25 Sep, 15:31 UTC
3. 3 CryptoSlateFed stablecoin proposal would make circulation a capital cost for supervised issuers · 26 Sep, 13:35 UTC