On September 24, the Federal Reserve Board (FRB) requested public comment on two proposed rules that, together, establish how the FRB will regulate payment stablecoin issuance under the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). The first proposal lays out the substantive regulatory framework that FRB-supervised issuers, and related custodians, must follow on an ongoing basis, including reserve backing, capital, and risk management requirements. The second governs the application process for insured state member banks seeking to issue stablecoins through a subsidiary. Comments on both proposals are due 60 days after Federal Register publication.
Background
The GENIUS Act, enacted July 18, 2025, created a federal licensing and regulatory regime for “payment stablecoins,” digital assets designed for use as a means of payment or settlement, where the issuer is obligated to redeem at a fixed monetary value and represents that it will maintain a stable value. Only a “permitted payment stablecoin issuer” (PPSI) may issue payment stablecoins in the U.S. A PPSI must be a subsidiary of an insured depository institution approved by its primary federal regulator, a federally qualified issuer approved by the Office of the Comptroller of the Currency (OCC), or a state-qualified issuer approved by its state regulator. The FRB is the primary federal regulator for PPSI subsidiaries of insured state member banks, and these two proposed rulemakings join a broader wave of GENIUS Act implementing rules already proposed by the OCC, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration, Treasury Department, Office of Foreign Assets Control, and Financial Crimes Enforcement Network (discussed here).
Proposal One: Reserve Assets, Capital, and Risk Management Framework
The first, larger proposed rule implements the FRB’s ongoing regulatory responsibilities for FRB-supervised PPSIs and, for a narrower tying provision, all PPSIs regardless of regulator. It is designed to ensure that payment stablecoins are fully backed at all times by permissible reserve assets. Key components include the following:
Permissible and prohibited activities. PPSIs may issue and redeem stablecoins, manage and maintain custody of reserves, and provide safekeeping services, but may not lend or issue stablecoins as loan proceeds. The proposal also restates the GENIUS Act’s bans on deceptive naming/marketing, rehypothecation of reserve assets (with narrow exceptions), and includes an anti-evasion presumption aimed at disguised interest/yield payments to stablecoin holders through affiliates or white-label partners.
Reserve assets. This is the core prudential piece. PPSIs must maintain identifiable, segregated reserves with a fair value that equals or exceeds outstanding stablecoins at all times, checked at least daily. Permissible reserves are limited largely to cash, short-term Treasuries, eligible bank deposits, and related repo transactions. The FRB takes a principles-based (rather than prescriptive) approach to diversification and concentration risk, while asking extensive questions about whether firmer numerical limits, buffers, or stress-testing requirements should apply. If a PPSI’s reserves fall short of the one-to-one requirement, strict timelines kick in requiring notice to the FRB, a remediation plan, and, absent a credible fix, mandatory liquidation and pro-rata redemption to protect stablecoin holders.
Redemption and disclosure. PPSIs must redeem stablecoins within two business days (or faster, at their choice), publicly disclose their redemption policies and fee structures in plain, conspicuous language, and give at least seven days’ notice before changing fees. Narrow safe harbors apply for delays caused by legally required anti-money laundering/sanctions screening or genuinely uncontrollable circumstances, but not simply high redemption volume.
Reporting and audits. PPSIs must publish monthly reserve composition reports, examined by a registered public accounting firm, with Chief Executive Officer/Chief Financial Officer certifications subject to criminal penalties for knowing false statements.
Capital, risk management, and custodians. The proposed rule also sets out standardized capital requirements tied to credit and operational risk, broader risk management standards, and a separate framework for FRB-supervised custodians safekeeping stablecoin reserves or private keys, along with a cross-cutting tying prohibition applicable to all PPSIs regardless of regulator.
With regard to anti-tying rules, the GENIUS Act vests the FRB with exclusive authority to issue rules to carry out the Act’s tying prohibition for all PPSIs, including those PPSIs not supervised by the FRB. Consistent with the GENIUS Act, the proposed rule would prohibit any PPSI from providing services to a customer on the condition that the customer (i) pay for an additional product or service from the PPSI or its subsidiaries, or (ii) agree not to obtain an additional product or service from a competitor of the PPSI. The proposed rule also explains the process for requesting an exception from the FRB.
Proposal Two: Applications for State Member Bank Subsidiaries
The second proposed rule establishes a tailored application process for insured state member banks seeking FRB approval for a subsidiary to issue payment stablecoins. Highlights include the following:
Applications will be sent to the bank’s Federal Reserve Bank by letter (no separate form required), and must include a business plan, financial information, capital structure documentation, reserve management plans, and biographical/background information on principal shareholders and key decision-makers.
The FRB must confirm within 30 days whether an application is “substantially complete,” and must make a decision within 120 days of that point. An application is deemed approved if the FRB misses the deadline.
Denials must rest on safety-and-soundness grounds tied to statutory factors, and the FRB must provide a detailed written explanation with actionable steps to cure any shortcomings.
The proposal creates a process governing appeals, hearings, and final determinations, and is tailored to reduce burden for wholly owned subsidiary structures while addressing more complex scenarios like bank consortium ownership.
What This Means for State Member Banks and Other Market Participants
Together, these proposals represent the FRB’s first comprehensive articulation of how it will regulate stablecoin issuance by state member bank subsidiaries, both substantively and at the application stage. The reserve, redemption, and activities provisions already show a framework closely coordinated with the OCC’s and FDIC’s parallel proposed rulemakings, and the FRB has posed dozens of detailed questions on issues ranging from multi-brand stablecoin structures to numerical reserve diversification limits to real-time reporting. State member banks considering a stablecoin subsidiary, or already engaged in the space, should begin evaluating comment strategy well before the 60-day window closes, particularly on the reserve asset diversification, redemption, and remuneration/anti-evasion provisions likely to draw the most attention. Both state member banks and other market participants may wish to comment on the anti-tying provisions that apply to all PPSIs.