Current Affairs Security

Fed Finally Puts Flesh on the GENIUS Act Stablecoin Bones

2026-09-25

The Federal Reserve dropped two proposed rules on Thursday to actually implement last year's GENIUS Act, the stablecoin law nobody knew existed until it did. Both are open for 60-day public comment. No actual rules yet. This is the machinery grinding to life.

First proposal: stablecoin reserve backing. The Fed wants 1-to-1 backing—every dollar of stablecoins issued gets backed by at least one dollar in Treasury bills and other liquid assets. Not held by the issuer. Separate accounts. They're also adding capital requirements and risk management standards specific to stablecoin activities, plus rules for whoever safekeeps those reserve assets.

Second proposal: a pathway for banks to issue stablecoins through subsidiaries. Apply, show your business plan, hand over financial info, regulatory review happens within 120 days per the Act itself.

Here's where it gets interesting. The GENIUS Act bans stablecoin issuers from paying interest directly to holders. This was deliberate—stop stablecoins from raiding bank deposits and blowing up the financial system. But the law left a gap: what about third parties? Your Coinbase wallet offering rewards on USDC? The Fed's proposal says no. They're treating third-party yield arrangements as prohibited indirect interest payments. This aligns with what the OCC already proposed, which suggests federal regulators are finally on the same page.

The GENIUS Act passed in July 2025. Required regulators to finalize rules by July 2026. Didn't happen. Everyone's late but accelerating anyway. FDIC dropped their proposal in December 2025. OCC put out a full framework earlier this year. Treasury just proposed anti-money laundering and sanctions rules. The Fed is the last major piece.

Fed Governor Michael Barr made a point worth noting: stablecoins only stay stable if you can actually redeem them at par. Not in normal times. In a real crisis. When the issuer itself is under stress. He's right. The whole thing collapses the instant people doubt redemption. The rules have to be tight enough that trust doesn't matter because the structure does.

The comment period is 60 days. Then the Fed revises based on feedback. Then final rules get published. Then the clock starts on a transition period where existing stablecoin issuers have 18 months after the Act or 120 days after final rules land to get compliant. Whichever is shorter.

This is genuinely substantive regulation landing on an industry that spent years treating stablecoins as the wild west. Reserves have to be real. Capital requirements exist. Third-party yield workarounds are blocked. It's not perfect—no regulation ever is—but it's coherent.

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