The Federal Reserve Proposes Reserve and Capital Requirements for Payment Stablecoin Issuers Under the GENIUS Act. On September 24, the Federal Reserve requested public comment on two proposals aimed at implementing the GENIUS Act for payment stablecoin issuers supervised by the Board. These proposals would translate the law’s mandates into requirements for reserves, capital, redemption, and bank approval, while initiating a 60-day public comment period following publication in the Federal Register. Permitted Reserve Levels and Two-Day Redemption Standard According to the Federal Reserve’s (Fed) primary proposal, payment stablecoins must be backed by a 1:1 ratio of permitted reserve assets. Per the Board staff memorandum, eligible assets include U.S. dollars, balances at the Federal Reserve, insured deposits, U.S. Treasury securities maturing within 93 days, and certain repurchase agreements secured by U.S. Treasury securities. This regulatory framework also requires issuers to publicly disclose policies governing redemption within no more than two business days, subject to certain limited exceptions. According to Reuters, this framework will establish requirements for reserve custodians and address stablecoin-related activities of banks supervised by the Federal Reserve. Capital Requirements Target Uninsured Deposits, Reverse Repurchase Agreements, and Operational Risk The proposal goes beyond asset backing by adding loss-absorption requirements for specific risks. It imposes capital requirements for credit risk associated with uninsured deposits and inadequately collateralized reverse repurchase agreements, as well as for operational risk. The proposed credit risk capital charge is 2%. The operational risk charge will range from 1% to 2% of total outstanding stablecoins, depending on the size of the issuer, according to the Fed’s memorandum. These capital charges will apply alongside, not in place of, the proposed reserve standards. State Member Banks Will Require Approval for Subsidiaries Issuing Stablecoins The second proposal establishes a separate Federal Reserve registration process for insured state member banks seeking approval to establish subsidiaries that issue payment stablecoins. According to a separate Fed staff memorandum, applicants must submit a business plan, financial information, capital structure documentation, and related certifications. The application process will evaluate the bank’s subsidiary arrangement independently of the prudential standards applied to stablecoin issuers, rather than treating issuer rules as automatic approval for this structure. Publication in the Federal Register Initiates a 60-Day Comment Period The Federal Reserve has requested public comment on both proposals; it stated that the comment period will close 60 days after the notices are published in the Federal Register. The September 24 notice did not specify an exact end date, as it is tied to the publication date. The Federal Reserve’s notice clarifies that these two proposals are implementing measures for payment stablecoin issuers supervised under the GENIUS Act. By Darnell Whitaker