Fed Proposals Split the Stablecoin Market Between Banks and Bills

The Federal Reserve on September 24, 2026, proposed two GENIUS Act rules for the banks it oversees that issue payment stablecoins. Issuers would have to back every token with allowed reserves and hold a 2 percent capital charge on the first $20 billion they put in circulation.

The second draft opens a formal door for insured state member banks to apply so a subsidiary can issue coins, with a 120-day clock once a file is complete. That is a win for banks that already staffed a product team. It is a cost stack for everyone else.

Every Supervised Coin Needs Permitted Reserves

The first draft would apply to Board-supervised permitted payment stablecoin issuers. Those are subsidiaries of insured state member banks that the Board has approved, and large state-qualified issuers that are uninsured state-chartered depositories with $10 billion or more in coins and that move into the Board’s book.

Staff told the Board the coins must stay on a one-to-one test at all times. The fair value of reserve assets must equal or exceed the par value of coins in circulation. The reserves must sit apart from other assets of the issuer. If the ratio slips, the issuer must notify the Fed and then sell the reserves and pay holders, unless it has a plan to get back to full backing promptly and the Board tells it to run that plan.

Allowed holdings track the statute. Cash in U.S. dollars, balances at a Federal Reserve Bank, and demand deposits or insured shares at an insured depository all count. So do Treasuries with a remaining maturity of 93 days or less, overnight repos backed by those Treasuries, overnight reverse repos with Treasury collateral, shares of funds invested only in those same assets, and tokenized versions of some of them.

ALLOWED RESERVE ASSETS

• Cash and Fed balances: U.S. dollar cash and money standing to the credit of an account at a Federal Reserve Bank.
• Bank claims: Deposits or insured shares payable on demand at an insured depository institution.
• Short Treasuries: Bills, notes, or bonds with remaining maturity of 93 days or less.
• Overnight trades: Repos and reverse repos on those Treasuries, plus funds that hold only allowed reserve assets.

The same draft would make the issuer publish a cash-out policy with a period that does not exceed two business days, unless a named safe harbor applies. The Board could stretch that period if it finds a threat to safety and soundness or to financial stability, or if a delay is in the public interest. Issuers would also have to spread reserves so they can still meet the one-to-one test under stress, including when uninsured deposit claims or reverse-repo trades sit with a small set of counterparties.

The Capital Charge Starts at 2 Percent

The GENIUS Act tells federal regulators to write capital rules that fit this business and that do not copy ordinary bank capital wholesale. The Board’s answer is a flat charge on coins in circulation, plus extra capital where the reserve book takes credit risk, plus a slice of non-reserve revenue.

The running-the-coin charge is graduated. It is 2 percent on the first $20 billion, 1.5 percent on the next $30 billion, and 1 percent on amounts above $50 billion. Staff said operational risk may not rise in a straight line as a program grows, which is why the rate falls as the book gets large.

OPERATIONAL CAPITAL ON COINS IN CIRCULATION

On top of that ladder, the draft would impose a two percent charge on uninsured deposits and undercollateralized reverse repos held as reserves, with a look-through for those claims inside eligible funds. A second running-risk charge would equal 25 percent of the three-year average of annual revenue that does not come from reserve assets.

Scale is a discount. A $20 billion program would post $400 million of operational capital on the coins alone. A book that has already crossed $50 billion would add new coins at 1 percent. Small programs pay the top rate on every dollar they issue. That is how a capital rule that looks technical becomes a sorting hat.

What State Member Banks Must File to Issue Coins

The companion draft is the front door, not the balance sheet. It would sit in Regulation UU as 12 CFR part 247, Docket No. R-1900. Only an insured state member bank can file, and it files for a subsidiary. The bank is the applicant. Uninsured state member banks are told to go to their home state stablecoin regulator if they want a state-qualified issuer.

The filing would come in by letter to the appropriate Federal Reserve Bank. Staff listed a business plan, financial information, policies and procedures, papers on the proposed capital structure, biographical reports, and required certifications. The Board would have to decide a substantially complete file within 120 days. A Congressional Research Service overview of the Act states that an application not acted on within 120 days is deemed approved. The Board may deny a complete file only if it finds the activities, including those of the proposed issuer, would be unsafe or unsound on the statutory factors. Appeals, hearings, and a final determination are built into the draft.

WHAT THE BANK HAS TO SEND

• The plan: A business plan for the subsidiary that would issue the coins.
• The books: Financial information and papers on the proposed capital structure.
• The people: Biographical reports plus policies, procedures, and required certifications.

National banks and other OCC names have had a proposed rulebook since March 2, 2026, when the OCC’s notice ran at 91 Fed. Reg. 10202. The FDIC followed on April 10, 2026, at 91 Fed. Reg. 18534. The Fed’s own staff memo cites those notices. State member banks that waited for Board paper are getting their on-ramp months later, with less calendar left before the statute’s date.

Short Treasuries Collect the New Bid

The reserve list is where the quiet winner sits. A Board-supervised coin cannot lean on longer bonds, corporate paper, or crypto as backing. The statute already pointed issuers at cash, insured deposits, central-bank balances, government funds, and Treasury bills with remaining maturity of 93 days or less. The Fed draft writes that list into the Board’s own rule and adds spreading rules so the cash-out test still works when markets are ugly.

That turns every new dollar of Board-supervised issuance into a standing bid for the front end of the Treasury curve, for overnight Treasury repo, or for funds that hold those same assets. Custody shops that already safekeep short government paper pick up a second book: the draft would set rules for Board-supervised firms that hold the assets behind the coins. Banks that want a piece of the float, without issuing a token, still need those custody rules to be workable.

Holders do not share the coupon. The Act bars an issuer from paying interest or yield solely because someone holds, uses, or keeps the coin. The Fed draft would treat some third-party setups as presumed banned payments of yield, in line with the OCC’s earlier notice. Exchanges can still pay customers. The issuer keeps the bill income. The coin is a payment tool, not a savings product, under this design.

Stablecoin Beat put the $304.3 billion stablecoin market on September 24, 2026, with Tether’s USDT at $183.5 billion (60.3 percent) and Circle’s USDC at $75.2 billion (24.7 percent). Most of that stock is not a Board-supervised product today. The draft still sets the template other federal shops have been writing toward, and it tells anyone who wants a Fed-supervised coin where the reserves have to live.

Who Pays If Issuance Has to Stop

The cost of a miss is not a consent order and a fine. It is a forced exit. Staff described automatic results when capital is short at a quarter-end. The issuer would have to file a plan to get back into compliance. If the shortfall is still there at the end of the next quarter, the issuer would have to sell all reserve assets and pay off the coins.

THE WIND-DOWN TRIGGERS

• Reserve hole: Drop below one-to-one, notify the Fed, then sell reserves and pay holders unless the Board accepts a prompt restore plan.
• Capital miss: A quarter-end shortfall requires a repair plan. A second straight quarter-end miss forces a full sell-off and cash-out of the coins.

Holders get a statutory edge in a failure. The Act gives them priority over other claims against the issuer in bankruptcy. The coins are not federal deposit insurance, and they are not securities or commodities under the statute. A two-quarter fuse that dumps Treasuries into the market to fund cash-outs is a run script written in advance. Large issuers with spare capital can eat a bad quarter. A thin program that is still paying 2 percent on its first $20 billion has less room.

The draft also walls the issuer into a narrow set of jobs: issue and cash out coins, manage the reserve book, and handle custody that supports those tasks. Staff said these firms would generally not be expected to carry material liabilities other than the coins, or to hold a lot of assets other than reserves. A tying ban would run even wider. It would stop any permitted issuer, including one the Board does not supervise, from making a customer take another product as the price of the coin service, or from blocking a customer from a rival’s product.

Barr Wants Clearer Rights to Redeem

Governor Michael S. Barr backed putting the drafts out for comment and then listed the holes he still wants closed. He said coins work as payments only if people can get a dollar back when markets and the issuer are both under strain, including when even liquid government debt is under pressure.

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 S. Barr, Federal Reserve governor, statement on September 24, 2026

Barr said he was glad to see reserve limits and clear capital numbers, and he asked whether the draft does enough on interest-rate and foreign-currency risk. He also wants reliably and promptly redeemed at par rights written so the public can see them in the final rule. On crime controls, he flagged a “significant or systemic” bar that would stop the Board from bringing an anti-money-laundering action unless the defect meets that test, a worry he also raised on a July bank proposal. He closed by saying more work will be needed if these coins are going to be dependable payment instruments.

Little Calendar Room Before January 2027

The GENIUS Act became Public Law 119-27 on July 18, 2025. Staff restated the effective date as the earlier of January 18, 2027, or 120 days after the primary federal payment stablecoin regulators issue any final rules that carry out the Act. A final issued after September 24, 2026, would put that 120-day mark after January 18, 2027. The date on the calendar is therefore January 18, 2027, 116 days after the Board put these drafts out.

Comments would run 60 days after publication in the Federal Register. The notices still carry a placeholder for that start date. A comment window that has not begun, followed by a final-rule write, is a tight fit against a statute that does not wait. The public file can still change a rate, a cash-out detail, or a custody line. It cannot add months to January.

FROM LAW TO FED DRAFT

1. July 18, 2025: The GENIUS Act is signed as Public Law 119-27, creating federal rules for U.S. payment stablecoins.
2. March 2, 2026: The OCC publishes its GENIUS Act proposal for the issuers it supervises.
3. April 10, 2026: The FDIC publishes its proposal for FDIC-supervised issuers and related firms.
4. September 24, 2026: The Federal Reserve Board asks for comment on two drafts covering Board-supervised issuers and insured state member bank filings.
5. January 18, 2027: The Act takes effect on this date unless an earlier start was already triggered by final rules.

Banks that already built a filing under the OCC or FDIC drafts can reuse that work. State member banks that sat on their hands now have a 120-day decision clock, a 2 percent capital start, and a reserve book that is a Treasury product. The comments will argue over rates and cash-out rights. The sorting between those two groups is already in the paper.

Disclaimer: This article is news reporting and analysis of Federal Reserve proposals and the GENIUS Act. It is for information only and is not investment, legal, tax, or trading advice, and it is not a recommendation to buy, sell, hold, or issue any stablecoin, Treasury security, bank stock, or other asset. Readers who may be affected should consult a qualified attorney, licensed financial adviser, or compliance professional who can apply the statute and any final rules to their facts. Figures, comment windows, and status details reflect the cited official papers and datasets as of the dates named in the article and can change as the Federal Register notices, comment files, and final rules move.