On 24 September the Federal Reserve Board published two proposals implementing the GENIUS Act. The first sets reserve, capital and risk management requirements for payment stablecoin issuers it supervises. The second creates an application process for banks that want to issue through a subsidiary. Comments close 60 days after publication in the Federal Register.
Read as a headline this is capital requirements for stablecoins. Read as a document it is a price list, and the interesting part is which lines are filled in.
The competitive variables are questions.
1 What The Proposal Prices
The reserve side is what the statute demands. Stablecoins must be "fully backed at all times by permissible reserve assets," with principles based standards for diversification, against the GENIUS Act requirement that an issuer maintain identifiable reserves on at least a one to one basis across eight permitted asset types.
Capital is the new work, and it is narrower than the coverage suggests. The proposal imposes requirements "to address their operational risks and, if applicable, the credit risk from holding reserve assets that are uninsured deposit claims and undercollateralized reverse repurchase agreements." Hold Treasury bills and there is no credit charge. The charge is for running the operation.
That operational charge has two parts. The first is between one and two percent of stablecoins outstanding, "to capture risks from issuing and redeeming payment stablecoins and managing reserve assets." The second is based on revenue from non reserve assets, covering custody services and other activities that issuance alone does not capture. On top sits a loss scalar that "would adjust the operational risk capital requirement upward or downward in response to realized operational losses."
The first part is graduated, and the direction has drawn attention: 2.0 percent on the first $20 billion outstanding, 1.5 percent on the next $30 billion, 1.0 percent above $50 billion. The proposal gives its reason in the same sentence. "Given operational risk may not increase linearly with a Board-supervised PPSI's growth, this capital charge would be graduated based on the value of stablecoins outstanding."
A larger issuer does hold less capital per dollar issued, and that is worth naming. It is not evidence of a subsidy. The charge is against operational risk, the stated rationale is that operational risk does not scale with balance, and a firm with worse realised losses pays more through the scalar regardless of size. We would not build an argument about competitive advantage on this line, and we say so because the argument is circulating.
2 The Parent Pays
The provision that gets least attention is the one that decides whether this is a cheap structure.
A bank that consolidates a stablecoin issuer in its accounts must, under the proposal, amend its treatment under the Board's capital rule to "(i) deconsolidate the PPSI from the Board-regulated institution's balance sheet and (ii) deduct the PPSI's total minimum capital requirement from the parent banking organization's common equity tier 1 capital."
Deducted from common equity tier one. Not risk weighted, not diversified against the rest of the group. Whatever the subsidiary must hold, the parent gives up the same amount of its highest quality capital. The subsidiary structure moves the activity outside the bank; it does not move the cost. And a failure to meet the minimum at quarter end triggers automatic consequences, including a plan for returning to compliance.
This is where our fourth paper's question reappears. We argued in August that the bank consortium building a deposit token was defending a funding base rather than chasing payments. This proposal prices what that defence costs when a bank issues the instrument itself, and the price is paid in the same capital that supports the lending book.
3 Framework · Priced And Unpriced
| Item | What the proposal says | Settled |
|---|---|---|
| Reserve backing | Fully backed at all times by permissible assets, with diversification standards | Yes |
| Operational risk capital | One to two percent of stablecoins outstanding, graduated, plus a charge on non reserve revenue, plus a loss scalar | Yes |
| Credit risk capital | Only for uninsured deposit claims and undercollateralized reverse repurchase agreements | Yes |
| Parent capital | Deconsolidate the issuer and deduct its minimum requirement from common equity tier 1 | Yes |
| Yield to holders | Prohibited. Certain affiliate arrangements presumed prohibited, rebuttable in writing | In principle |
| Whether the ban reaches affiliates and third parties | Asked, together with a question on the effect on bank deposits | No |
| Anti money laundering enforcement | Action requires a deficiency that is "significant or systemic" | Meaning open |
The first four rows are engineering. The last three decide who takes deposits.
4 The Two Blanks
The prohibition itself is clear. Proposed section 247.10(c)(4) provides that an issuer "must not pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin." To stop the obvious workaround, the Board follows the approach the OCC proposed and presumes that certain arrangements with certain persons are prohibited payments. An issuer may rebut that presumption by submitting written materials that, in the Board's judgment, show the arrangement is not prohibited and not an attempt to evade.
Note the shape of that. The firm makes a written showing and the agency judges it afterwards. Our seventh paper described the same move in the SEC's proposed safe harbour, where the issuer certifies and no examiner stands at the gate. Two agencies, two regimes, one design: the burden sits with the applicant and the test is applied later.
What is not decided is how far the ban reaches. The Board asks whether the prohibition "be broader to prevent Board-supervised PPSIs from directly or indirectly paying remuneration to payment stablecoin holders (rather than presuming that certain arrangements with affiliates or related third parties violate the prohibition)," whether there are evasive behaviours it should name expressly, and what impact either prohibition would have on bank deposits.
That last clause is the whole competitive question, and it is a question. If a bank's affiliate may pay a holder for holding, the instrument competes with a deposit on price. If it may not, the stablecoin is a payment rail and the deposit keeps its franchise. The Board has written the plumbing precisely and put the pricing power out for consultation.
The second blank is enforcement. The proposal would require a Bank Secrecy Act deficiency to be "significant or systemic" before the Board takes supervisory or enforcement action, aligning with a standard it recently proposed for banks generally, and it asks what clarification issuers need to know what a "significant or systemic failure" is. Governor Barr supports the rulemaking and flagged exactly this, saying the standard "may have unknown effects on the Board's ability to effectively substantiate" that an institution maintains a compliant programme. He also set the test the whole regime should be judged against: "Stablecoins will only be stable if they can be reliably and promptly redeemed at par."
5 The Other Side
Five arguments cut against this paper.
The graduated charge is ordinary supervision. Operational risk genuinely does not scale with balance sheet, the Board says so in the same sentence, and the loss scalar and the non reserve revenue charge both cut against reading the schedule as a size reward. We agree, which is why we do not rest anything on it.
The regime binds a small set. These rules apply to issuers the Board supervises. The firms that issue most stablecoins today are not banks and sit outside this framework entirely, so whatever advantage the schedule confers is an advantage inside the bank track, not across the market. The counter to that counter is that the bank track is the one being built right now.
Consultation is how rules are made. Asking whether a prohibition should be broader is not indecision, and the cross references to parallel OCC questions in the same document suggest the agencies intend a coordinated answer. Fair. Our claim is about sequence, not motive: the priced items bind on adoption while the deposit question waits for a second round.
The AML standard is consistency, not a carve out. The Board says it aligns with what it proposed for banks generally. An issuer supervised like a bank being enforced against like a bank is defensible, and Barr supports the proposal while noting the risk.
And it is a proposal. Comments close 60 days after Federal Register publication, a date we have not confirmed, and every number here can move before adoption.
6 What Would Settle It
- Whether the final rule keeps the graduated operational charge, and whether the loss scalar survives with it. If the scalar is dropped and the schedule stays, the size reading gets stronger.
- Whether the prohibition is extended to affiliates and related third parties, and what the Board says in response to its own question about the effect on bank deposits.
- Whether "significant or systemic failure" is defined in the final rule or left to case by case supervision.
- How many insured state member banks actually apply for a subsidiary to issue, and whether any large non bank issuer moves into that structure rather than staying outside it.
- Whether the common equity deduction survives comment. It is the provision that decides whether issuing through a subsidiary is cheaper than issuing on balance sheet, and it is the one the industry has the clearest reason to contest.
If the deduction holds and the yield ban is extended, a bank issued stablecoin is a payment instrument that costs the parent core capital and cannot pay for balances. If the deduction is softened or the ban stays narrow, it becomes something closer to a deposit that is not called one, and the question our fourth paper asked gets answered in the other direction.
7 Sources
Quotations are taken from the primary documents. Retrieval 28 September 2026.
- Federal Reserve Board, press release and proposals implementing the GENIUS Act, 24 September 2026. The two proposals, full backing by permissible reserve assets, the tailored application process, and the 60 day comment period.
- Federal Reserve Board, memorandum on the reserve, capital and risk management proposal, 24 September 2026. The scope of capital requirements, the two part operational risk charge, the graduated schedule and its stated rationale, the loss scalar, the deconsolidation and common equity tier 1 deduction, the automatic consequences of a capital shortfall, and the "significant or systemic" anti money laundering standard.
- Federal Reserve Board, proposed rule text and preamble, 24 September 2026. Proposed section 247.10(c)(4) and its rebuttable presumption, the OCC aligned approach, the consultation questions on broadening the prohibition and on bank deposits, and the anti money laundering provisions and questions.
- Federal Reserve Board, memorandum on the application proposal, 24 September 2026. Applications from insured state member banks for a subsidiary to issue, and the statutory factors for a substantially complete application.
- Michael S. Barr, statement on the proposals, 24 September 2026. Support for the rulemaking, redemption at par, and the concern about the "significant or systemic" standard.
- OX85, What does the money fund?, August 2026, and Who decides it is over?, August 2026.
On sourcing, and on what we did not use. The OCC's parallel proposal is referenced in the Board's document and we quote the Board's characterisation of it rather than the OCC's own text, which we did not read. We give no figure for the size of the stablecoin market or for the share held by non bank issuers, because we did not verify one. We make no claim about how Board members voted beyond the statement quoted. Secondary coverage describing narrow third party reward arrangements as adopted text is mistaken on the documents we read: that question is put out for comment, not decided. The date of Federal Register publication, from which the comment period runs, is not confirmed here.
This paper is published for informational purposes and does not constitute investment, legal or tax advice. It describes proposed rules that are open for public comment and may change before adoption. It is not a recommendation regarding any security or digital asset. Figures and quoted language are as of the dates stated.