Federal Reserve Unveils Capital and Redemption Standards for Stablecoin Providers
The Federal Reserve's new framework establishes capital standards, redemption processing within two business days, and enhanced reserve reporting as authorities work to implement the GENIUS Act.
The Federal Reserve has put forward regulatory standards covering capital requirements, redemption procedures, and additional oversight measures for stablecoin providers operating under its authority as part of its efforts to execute the GENIUS Act.
The GENIUS Act currently mandates that providers of stablecoins hold reserves that back their digital tokens at a one-to-one ratio and restricts the categories of assets permitted for these reserves, such as cash holdings, deposits at banking institutions, and short-duration United States Treasury securities. Federal regulatory bodies were tasked with developing more comprehensive standards for capital, diversification of reserves, and risk-management protocols.
According to the Federal Reserve's framework, providers would be subject to a capital charge for operational risk calculated as 2% of the initial $20 billion in outstanding stablecoins, 1.5% on the subsequent $30 billion, and 1% on quantities exceeding $50 billion, in addition to extra capital obligations related to credit risks and operational exposures.
Providers would typically need to complete redemption requests within a two-business-day timeframe. Should reserves drop beneath the mandated one-to-one backing ratio, a provider must inform the Fed and either replenish its reserves following a corrective strategy or liquidate the reserves and redeem the stablecoins in circulation.
Providers would additionally be obligated to release monthly statements that detail their stablecoins in circulation along with the valuation and makeup of their reserve holdings. These public disclosures must undergo examination by a registered public accounting firm and receive certification from both the provider's CEO and CFO.
An additional framework would create an application procedure for banks under Fed supervision that are seeking authorization to issue payment stablecoins via subsidiary entities, with requirements including submission of a business strategy and financial data.
The frameworks are available for public commentary for a 60-day period following their publication in the Federal Register.
Barr emphasizes stablecoins must maintain redeemability amid market turbulence
Fed Governor Michael Barr expressed support for the framework on Thursday while noting that additional efforts would be necessary for stablecoins to function as dependable payment mechanisms.
Stablecoins will only be stable if they can be reliably and promptly redeemed at par in a range of conditions. This includes during market stress, when pressure can be put on the value of even otherwise liquid government debt, and during episodes of strain on the individual issuer or its related entities.
Michael Barr, Fed Governor
Barr further noted he was pleased by the proposed restrictions on reserve asset types and the standardized approach to capital requirements, while requesting public input on whether the regulatory structure sufficiently addresses risks related to interest rates and foreign currency exposure.
He also stated that universal redemption rights ought to be explicitly codified in the final regulation and voiced apprehensions regarding a provision that would bar the Fed from pursuing supervisory or enforcement measures for an anti-money laundering deficiency unless the matter is deemed "significant or systemic."
The GENIUS Act is scheduled to become effective on Jan. 18, 2027, or 120 days following the issuance of final implementation regulations by federal authorities, whichever date arrives first.