Fed Proposes Detailed Stablecoin Rules: 1:1 Reserve, 2-Day Redemption, Weekly Reporting

On September 24, 2026, the Federal Reserve released two draft regulations on stablecoins. The first established enforceable rules covering reserve assets, redemptions, capital requirements, custody, and ongoing reporting; the second outlined how banks supervised by the Federal Reserve may apply to establish subsidiaries for stablecoin issuance. One year after the passage of the GENIUS Act, U.S. regulation of payment stablecoins, as framed by Congress, began entering operational phases that issuers must navigate daily.

The draft is currently under public comment, with the comment period lasting 60 days after the document is published in the Federal Register. The rule directly applies to payment stablecoin issuers and related banks supervised by the Federal Reserve. These requirements will also serve as key reference points for banks, custodians, and institutional clients when evaluating stablecoin businesses. Issuers must restructure reserve accounting, redemption processing, risk measurement, and regulatory reporting, integrating compliance into daily operations.

Figure 1 | How 1:1 Reserve Translates into Daily Valuation, Custody, and Funding Constraints

The GENIUS Act requires stablecoins to be backed 1:1 by qualified assets. The Federal Reserve draft further clarifies how this ratio is calculated and verified in daily operations. Under the proposed 12 CFR §247.11, issuers must record reserves at fair value at least once daily, at 5:00 p.m. in the time zone of the supervising Federal Reserve Bank, and ensure that reserve value is never less than the redemption amount of outstanding stablecoins.

The range of assets eligible for the reserve pool is quite narrow and primarily includes cash, balances held at Federal Reserve banks, qualifying bank deposits, U.S. Treasury securities with remaining maturities of no more than 93 days, qualifying overnight repurchase and reverse repurchase agreements, and specific money market funds. The logic is straightforward: stablecoin holders may redeem their tokens at par value at any time, so the reserves must be quickly convertible into cash, minimizing the risk that the issuer would need to sell assets at a discount to meet redemption requests.

Different reserve tools come with distinct operational requirements. Bank deposits must meet the institutional and account criteria listed in the draft; repurchase transactions must use eligible collateral and involve qualified counterparties; and money market funds may only invest in short-term assets permitted in the reserve pool. Issuers must therefore trace the ultimate destination of funds. Even if an item is labeled as a “cash management product,” it cannot be counted as statutory reserve if the underlying assets fail to meet requirements regarding maturity, counterparty, or liquidity.

Reserve management thus shifts from an asset allocation issue to a continuous cash flow operation. When issuance increases, the issuer must simultaneously replenish qualified assets; when redemptions concentrate, they must arrange for cash and maturity structures; and when interest rates change, they must manage valuation fluctuations in short-term treasury securities and other reserve instruments. Excess reserves beyond statutory requirements cannot be withdrawn at any time. The draft permits issuers to withdraw excess reserves on a monthly basis, after review and certification, at month-end. This reduces flexibility in cash management but also limits the issuer’s ability to temporarily top up reserves on reporting dates.

The proposed rules also specifically address the custody环节. Institutions holding reserves on behalf of issuers must maintain separate accounting records to distinguish the reserves from their own assets and keep books sufficient to verify each issuer’s entitlement. The draft permits the use of omnibus accounts—accounts in which a custodian holds assets for multiple clients collectively—but internal records must continuously identify each client’s share. When issuers need to access reserves to fulfill redemptions, the custody arrangement must also support the timely release of assets. For issuers, selecting an institution that “can hold Treasury securities” is not enough; account structure, reconciliation frequency, and operational pathways for asset retrieval must be incorporated into contracts and system design.

Figure 2 | Key Steps from Redemption Request to Fiat Currency Receipt

The proposed §247.12 requires issuers to publicly disclose their redemption policies and complete payments no later than two business days after receiving a valid redemption request. The disclosure must detail how to submit a request, the applicable conditions, and the processing procedure, and must be continuously available through channels such as a website. This establishes a clear timeline for face-value redemptions, enabling users to assess whether issuers are genuinely fulfilling their commitments.

Two business days may seem slower than the instant transfer experience offered by many on-chain assets, but issuers must navigate a complex process involving off-chain bank accounts, reserve liquidation, identity verification, and sanctions screening. While stablecoins can be transferred 24/7 on the blockchain, redemptions still depend on banking hours and traditional fiat payment systems. To accelerate processing, issuers must pre-allocate cash, automate compliance checks, and establish agreements with banks and custodians for night and weekend operations.

This rule will also shift the focus of competition among stablecoins. Previously, markets found it easier to compare issuance scale, trading depth, and the number of supported blockchains. After the standardized redemption timeline is implemented, institutional clients will further inquire about average settlement times under normal conditions, queue mechanisms during stress periods, direct redemption thresholds, and fees for intermediary channels. Reserve quality answers “Where is the money?”, while the redemption process answers “When can holders get their money back?”—together, they determine whether a stablecoin can fulfill its role as a payment instrument.

The draft permits regulators to impose restrictions on redemptions under specific circumstances, but does not grant issuers broad discretion to suspend redemptions unilaterally. Michael Barr, a Federal Reserve governor, also emphasized in a statement on the same day that the final rule should clearly articulate the right to redeem. Liquidity under stress scenarios, interest rate risk, and foreign exchange risk are expected to be the most discussed aspects during the comment period.

The asset side of stablecoin payments consists primarily of short-term, highly liquid instruments. Issuers may also incur losses from system outages, private key management failures, cyberattacks, third-party service disruptions, and operational errors. These events can result in costs related to compensation, recovery, and legal expenses. Therefore, the Federal Reserve, in the proposed §247.15, categorizes capital requirements into credit risk and operational risk, requiring issuers to calculate them at different frequencies.

Credit risk capital is calculated daily, while operational risk capital is calculated quarterly. New issuers must also meet a minimum capital floor of $5 million, which will be adjusted in line with U.S. nominal GDP. Regulators may require higher capital based on business scale and risk profile. For newly established bank subsidiaries, this means setting aside own funds capable of absorbing failure and dispute costs before products generate stable revenue.

Capital regulations directly integrate technical architecture into financial decision-making. Issuers relying on a single cloud provider, a single custodian, or a limited number of blockchains may see business continuity risks reflected in regulatory assessments; the more cross-chain issuances, the more complex the nodes, contracts, and reconciliation pathways become. Bank issuers benefit from existing risk governance and capital foundations, but they also face integration costs between traditional core systems and blockchain infrastructure. Non-bank technology companies bring valuable product experience, but to enter the regulated issuance system, they often need to connect their capabilities through bank partnerships, service outsourcing, or capital arrangements.

The draft also restricts misleading names and marketing. Issuers must not imply that stablecoins are backed by the U.S. government, federal deposit insurance, or other public credit guarantees, nor may they compensate users solely for holding, using, or retaining stablecoins. This latter provision aligns with the GENIUS Act’s restrictions on stablecoin yields; however, how it applies to platform rewards, affiliate subsidies, and bundled products will still impact how stablecoins acquire users.

Figure 3 | Regulatory Reporting and Capital Calculation Schedule for Stablecoin Issuers

Stablecoin regulation has long relied on monthly reserve disclosures, with the public typically seeing only a snapshot of asset composition at a given point in time. The proposed §247.14 raises the frequency of regulatory reporting: issuers must submit confidential operational data weekly, financial condition and income reports quarterly, and obtain certifications from the Chief Financial Officer and directors; anti-money laundering and sanctions compliance must also be certified annually.

The purpose of the weekly report is to allow regulators to continuously monitor issuance, redemptions, reserve changes, and operational anomalies without waiting until month-end. Issuers must use consistent data definitions across their financial records, on-chain monitoring, customer systems, and custodial accounts. If there is a delay in reconciling on-chain circulating supply with internal liability ledgers, issues will quickly surface in weekly submissions. As a result, data engineering at stablecoin companies has become part of the compliance infrastructure.

Frequent reporting also increases the accountability density of the board and management. After quarterly reports are certified by management, data discrepancies are difficult to dismiss as mere technical issues. Issuers must clearly define which system generates statutory figures, who reviews reserves and circulating supply, how anomalies are escalated, and how to handle delays in third-party data. For projects issuing tokens on multiple blockchains, a unified ledger for token minting, burning, and cross-chain transfers will serve as the starting point for regulatory inspections.

Barr also noted that the proposed standard, which triggers regulatory or enforcement actions only when anti-money laundering deficiencies are “material or systemic,” could undermine the effectiveness of day-to-day oversight. This controversy serves as a reminder to the market that reserve and capital rules govern the financial integrity of stablecoins, while customer identification, transaction monitoring, and sanctions screening ensure the legality of funds entering and exiting the system. Both sets of controls must work together within the same operational chain.

The second draft specifically outlines the application process for subsidiaries of banks supervised by the Federal Reserve that issue stablecoins. Application materials include a business plan, financial information, governance arrangements, risk management procedures, reserve and redemption protocols, among other elements. Upon receipt of the materials, the Federal Reserve will determine within 30 days whether the application is substantially complete; once complete, a decision will generally be made within 120 days, with a legal mechanism in place deeming the application approved if no decision is rendered beyond that timeframe.

Clear timelines reduce one of the uncertainties banks face when evaluating projects. In the past, banks entering the stablecoin space often began with custody, reserve banking, or technology partnerships, with self-issuance contingent on regulatory discussions and internal risk appetite. Now, banks can plan capital, technology, and partnerships around a publicly defined set of requirements, and incorporate the approval timeline into their product planning.

The 120-day regulatory clock begins once the materials are complete, but prior preparations still determine the overall project timeline. Banks must clearly outline in advance the target customers, expected issuance size, blockchain platform, smart contract governance, reserve custody, redemption channels, and exit strategy, and integrate these arrangements into their existing risk governance framework. If the technology is provided by an external company, the application materials must also detail subcontracting relationships, data access protocols, disaster recovery procedures, and the bank’s retained control rights. As a result, the stablecoin project will be reviewed as a complete banking product, rather than merely as the purchase of a standalone blockchain system.

The application process will not lead all banks to build their own stablecoins. Issuance involves costs related to reserve management, redemption customer service, on-chain security, compliance monitoring, and multi-party integration. Some banks are more likely to join a shared issuance network, while others will continue to provide reserves, custody, and fiat on-ramps to existing issuers. Large payment companies and technology platforms may instead seek bank subsidiaries or regulated partners to combine their distribution networks with banks’ compliance capabilities.

The most significant change in this Fed draft is breaking down "safety and stability" into a series of observable, reportable, and accountable daily actions. Short-term Treasuries remain the primary reserve asset, but differences among issuers will increasingly manifest in cash management, redemption speed, system resilience, data consistency, and banking network collaboration. The larger the scale, the harder it becomes to rely on ad hoc manual processes to maintain these capabilities.

Rules also influence the division of labor in the stablecoin market. Banks possess capital, accounts, and compliance systems; technology companies are familiar with blockchain, wallets, and developer interfaces; and payment institutions control merchant networks and cross-border infrastructure. A complete issuance system requires connecting these three capabilities. Ultimately, the market may see a small number of direct issuers alongside a group of institutions providing services such as reserve custody, compliance technology, on-chain monitoring, and distribution channels.

Competition among these service providers will also become more specific. Custodians must provide daily valuations, asset identification, and rapid release capabilities; on-chain monitoring firms must transform address activity into account data usable by issuers and regulators; and payment channels must reduce the time it takes for stablecoin redemptions to reach bank accounts. Even if issuers outsource certain functions, they must still explain the final data in weekly reports and quarterly certifications. Systems that can seamlessly connect on-chain circulating supply, reserve accounts, and customer redemption records will become a foundational element of stablecoin operations.

This article is intended solely for legal, policy, and industry research discussions, aiming to provide an objective analysis of digital finance, stablecoins, digital assets, and related regulatory developments. It does not constitute any form of investment advice, legal opinion, tax advice, or other professional recommendations, nor does it constitute any recommendation, promotion, or solicitation of financial products, digital assets, or business projects. The regulatory rules, market data, and institutional information referenced herein are primarily sourced from publicly available materials and may be subject to change due to evolving laws, regulatory policies, market conditions, or project developments. Readers are advised to independently assess the information in light of the latest public disclosures and to comply with applicable laws and regulations in their respective jurisdictions. The author and the publishing platform assume no liability for any investment, trading, or other commercial decisions made based on the content of this article.