Fed Unveils Capital and Redemption Rules for Stablecoin Issuers

The Federal Reserve on Thursday proposed the first detailed rulebook governing how much capital stablecoin issuers must hold and how quickly they must honor redemptions, moving to implement the GENIUS Act ahead of its statutory deadline. The proposal, paired with a separate application process letting Fed-supervised banks issue payment stablecoins through subsidiaries, marks the moment abstract legislative language turns into concrete compliance math for issuers operating in the United States.

From Law to Ledger

The GENIUS Act, already on the books, requires stablecoins to be backed one-to-one by reserves limited to cash, bank deposits and short-term US Treasurys. What it left unresolved was the operational detail: how much extra capital issuers need as a buffer, how fast they must return funds to holders, and what proof regulators require that reserves are real. The Fed’s proposal answers those questions with a tiered structure. Issuers face an operational-risk capital charge of 2% on their first $20 billion in stablecoins outstanding, dropping to 1.5% on the next $30 billion, and 1% on any amount above $50 billion. The scale is deliberately regressive — a design that rewards size rather than punishing it, easing the relative capital burden as an issuer’s float grows.

Redemption speed is treated with similar precision: issuers must honor requests within a maximum of two business days. That window sets a hard, enforceable ceiling not found in earlier, looser industry practices, and it responds directly to the core promise a stablecoin makes — that a token can be converted back to cash on demand.

Transparency obligations round out the package. Issuers must file monthly reserve reports audited by a registered public accounting firm and certified personally by the issuer’s chief executive and chief financial officer. If reserves ever fall short of full backing, the issuer must notify the Fed immediately and either top up the shortfall or begin liquidating assets to redeem tokens. That chain of accountability — audit, executive certification, mandatory disclosure, and a forced remedy — is the closest the US has come to a bank-style prudential regime for a product that, until recently, sat largely outside traditional financial supervision.

What the Numbers Mean for the Market

For issuers, the tiered capital charges translate directly into cost of doing business. A stablecoin issuer with $20 billion in circulation faces a materially higher relative capital load than one with $60 billion, meaning the rule could, in practice, favor consolidation among larger, well-capitalized players over smaller entrants. Combined with the new application pathway for bank subsidiaries to issue payment stablecoins, the framework opens a formal, supervised lane for traditional lenders to enter a market long dominated by non-bank issuers.

That shift echoes a broader pattern already visible elsewhere in the banking sector. Just this week, Canada’s largest banks moved to coordinate on tokenized deposits, and UK lenders completed their first interbank tokenized deposit transfers, signs that regulated institutions worldwide are positioning themselves for a digital-dollar and digital-deposit future rather than ceding the space to crypto-native firms. The Fed’s proposal gives US banks a comparable on-ramp, formalized through capital rules rather than informal pilots.

Not everyone on the Fed board is fully satisfied with the draft. Governor Michael Barr supported advancing the proposal but pushed for clearer universal redemption rights, arguing holders need unambiguous guarantees rather than issuer-by-issuer variation. He also flagged concern over a threshold that would limit Fed enforcement action on anti-money-laundering deficiencies to cases deemed ‘significant or systemic’ — a carve-out that could, in his view, let smaller compliance failures go unaddressed. Those reservations suggest the final rule may still shift before adoption, particularly on enforcement scope.

What Comes Next

The proposal now enters a 60-day public comment period once it is published in the Federal Register, giving issuers, banks and consumer advocates a formal channel to push back on the capital tiers, the redemption window or the AML enforcement threshold. The GENIUS Act itself is set to take effect January 18, 2027, or 120 days after final rules are issued — whichever comes first — putting real pressure on the Fed’s timeline.

• Whether the final rule tightens or loosens the AML enforcement threshold Barr criticized
• How many bank subsidiaries apply to issue payment stablecoins once the application process opens
• Whether smaller issuers lobby during the comment period to flatten the capital tiers
• How the rule interacts with growing cross-border stablecoin activity, which recently saw flows jump 77.5% even as the wider crypto market cooled, as detailed in our report on stablecoin cross-border flows

The stakes extend beyond compliance departments. As Washington separately debates using dollar stablecoins as a foreign policy tool, the domestic capital and redemption regime being built now will determine whether the underlying instruments are trusted and resilient enough to bear that weight.

Source: Cointelegraph

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