The Federal Reserve has proposed two rules to implement the GENIUS Act for payment stablecoin issuers under its supervision. The first would establish requirements for reserves, redemption, capital, risk management, custody, and reporting. The second would create an application process for insured state member banks seeking to issue payment stablecoins through a subsidiary. Comments on both proposals are due November 30, 2026.

The proposals move the discussion from whether payment stablecoins should have a federal framework to how an issuer would operate within one. For banks, prospective issuers, custodians, and commercial partners, the details of that framework will affect product design, reserve arrangements, customer disclosures, and the economics of distribution.

Full Backing Must Be Maintained at All Times

Under the first proposal, a Board-supervised permitted payment stablecoin issuer would have to maintain identifiable reserve assets with a fair value at least equal to the value of its outstanding stablecoins at all times. The reserves would have to be segregated from the issuer’s other assets and generally unavailable to satisfy other creditors’ claims before stablecoin holders have been redeemed at par. Permissible assets include specified short-term U.S. government securities and other assets allowed under the GENIUS Act.

This is an operational requirement as much as a balance-sheet requirement. An issuer would need records establishing its ownership and legal rights in the reserve assets, systems to track outstanding issuance, and a process for valuing reserves at least once each calendar day. It would also need access to assets that can be used to meet redemptions when holders request payment. The Board is seeking comment on whether additional limits or liquidity measures are warranted for particular reserve assets and arrangements.

The proposal also addresses tokenized reserve assets. A tokenized version of an otherwise permissible asset would qualify only if it confers legal rights identical to those of the asset in its conventional form. The Board recognizes that this may require a careful review of the instrument’s legal rights, rather than an assumption that putting an asset on a blockchain preserves its treatment as a reserve.

Redemption Rights Need a Working Process

The proposed rule would require issuers to publish a clear redemption policy. That policy would explain how a customer can redeem, the applicable timeframes, and any minimum redemption amount. Under the proposal, redemption generally could not take longer than two business days after the request, although the rule addresses circumstances in which that period may be extended. Issuers would also have to disclose the fees associated with buying or redeeming their stablecoins.

For issuers, the practical question is whether reserve management and redemption operations work together. A portfolio can meet an asset-eligibility test while still creating difficulties if assets cannot be accessed or converted quickly enough to honor requests. Governor Michael Barr highlighted prompt redemption at par, including during market stress, as a central measure of whether a stablecoin can function reliably as a payment instrument.

Monthly Reporting Would Carry Executive Accountability

Board-supervised issuers would have to publish a monthly report showing their outstanding stablecoins and the amount and composition of the reserves backing them. The proposed reporting template includes information such as the average tenor and geographic location of custody for reserve categories. The issuer’s chief executive officer and chief financial officer, or people performing equivalent roles, would have to certify the report’s accuracy to the Board. The proposal also calls for examination of the report by a registered public accounting firm before publication.

Those requirements would make the monthly reserve statement a formal control point. Issuers would need reliable information from treasury, finance, custodians, and any entities involved in issuance or reserve management. A reporting process that cannot reconcile coins outstanding against reserve holdings would create a regulatory problem, even if the issuer expects the assets to be sufficient.

Capital Would Address Risks That Reserves Do Not

One-to-one backing does not itself fund an issuer’s operations or absorb every loss. The Fed therefore proposes a separate capital framework for Board-supervised issuers. It would use tangible equity as regulatory capital and address credit risks associated with certain reserve arrangements, risks from assets outside the reserve portfolio, and operational risks associated with issuing and redeeming stablecoins and conducting other activities.

The proposed baseline operational-risk calculation would vary with the value of stablecoins outstanding. For issuance of up to $20 billion, it would begin at 2% of outstanding issuance value, plus 25% of average revenue from sources other than reserve assets over three years. Different marginal rates would apply above $20 billion and $50 billion, and a loss-based adjustment could change the requirement. These are proposed capital calculations, not a flat reserve surcharge or a final rule.

This distinction matters for business planning. Reserve assets back the obligation to redeem stablecoins; issuer capital supports the entity facing credit, operating, and other losses. A prospective issuer needs to model both.

Custody and Technology Are Part of the Framework

The proposal would set standards for Board-supervised firms that custody stablecoin reserves, payment stablecoins used as collateral, or private keys used to issue them. Covered custodians would have to account for customer assets separately and take steps to protect those assets from claims by the custodian’s or a subcustodian’s creditors.

The Fed also proposes risk-management and information-security requirements tailored to an issuer’s activities and complexity. Its discussion expressly recognizes that an issuer’s critical technology may include systems run by vendors and smart contracts used to mint or burn tokens. Contracts with custodians, technology providers, and other service partners therefore need to support the issuer’s ability to control assets, respond to incidents, and demonstrate compliance.

Yield Paid Through a Partner Would Face Closer Scrutiny

The GENIUS Act prohibits a permitted issuer from paying a holder interest or yield solely for holding, using, or retaining a payment stablecoin. The Fed proposes a rebuttable presumption aimed at certain arrangements that could route an issuer-funded payment through an affiliate or related third party. The presumption would apply when the issuer has an arrangement to pay yield to that party and the party has an arrangement to pay yield to holders of the issuer’s stablecoin for holding, using, or retaining it.

The Board specifically discusses service providers and white-label relationships within its definition of a related third party. An issuer could present written evidence to rebut the presumption, while arrangements outside its terms could still be assessed case by case. The Board says the prohibition is not intended to stop a merchant from independently offering a discount for payment with a stablecoin.

For a proposed rewards or distribution program, the analysis cannot end with the identity of the party sending funds to the holder. The agreements, the source of the payment, the relationship among the parties, and the condition for receiving the benefit all matter. The yield treatment remains a proposed rulemaking question; the Fed has not adopted this presumption as a final regulation.

A Tailored Application Path for State Member Banks

The second proposal would establish procedures for an insured state member bank to seek prior Board approval for a subsidiary to issue payment stablecoins. The bank would submit a business plan, financial information, relevant policies and agreements, capital information, and materials concerning management and the proposed subsidiary. The Board would evaluate whether the subsidiary could meet the GENIUS Act’s requirements and whether the proposed activities would be safe and sound.

The proposal uses a substantially complete application as the starting point for the decision period. Once that threshold is met, the Board would have 120 days to render a decision. It also sets out procedures for a hearing and review if an application is denied. Banks planning an issuance subsidiary would therefore need to prepare the operating model and supporting documentation before the statutory review clock becomes useful.

What Market Participants Should Do During the Comment Period

The Fed has asked for feedback on the proposed framework, including reserve treatment, capital calibration, redemption, and the scope of the yield prohibition. Prospective issuers should assess whether their reserve assets and custody structure would qualify; whether their systems can support daily valuation, timely redemption, and certified monthly reporting; and how the proposed capital requirement affects the business plan. Banks should examine what evidence an application would require. Distribution partners should review rewards and white-label agreements against the proposed yield presumption.

The two proposals do not complete every aspect of GENIUS Act implementation. They do, however, show how the Federal Reserve proposes to supervise the institutions within its jurisdiction: stablecoin backing must be demonstrable, redemption must be operationally credible, and the issuer must have the capital, controls, and governance to support the product it places into circulation.

The comment deadline for both Federal Reserve proposals is November 30, 2026.

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This blog post is for informational purposes only and is not legal advice. Please consult with a Launch Legal attorney regarding your specific situation.