Fed Lays Down the Law: 100% Reserves and Two-Day Redemption for Bank Stablecoins
The Federal Reserve has unveiled a proposed regulatory framework for payment stablecoins issued by banks, aiming to anchor these digital assets with concrete safeguards. The cornerstone of the plan is a strict requirement: every dollar of stablecoin in circulation must be backed by at least one dollar's worth of high-quality, liquid reserve assets.
The Approved Reserve List: Building a Safe Vault
So, what qualifies as a permissible reserve? The Fed provided a specific list, including:
- U.S. dollar cash
- Balances held at Federal Reserve Banks
- Certain types of bank deposits
- U.S. Treasury securities with remaining maturity of 93 days or less
- Qualified repurchase agreements and shares in eligible money market funds
The proposal notably leaves room for the "tokenized" form of some assets, indicating a degree of regulatory flexibility toward innovation. However, if the reserve value falls below 100% of outstanding tokens, the issuer must immediately notify the Fed and promptly restore the shortfall. Failure to do so could result in a forced liquidation of reserves to redeem all tokens.
First-Ever Capital Charges: Scaling with Size
Beyond reserve rules, the Fed introduced quantified capital requirements for the first time, targeting operational and some credit risks.
Under the proposal, issuers would face a "capital charge" based on the size of their stablecoin operations. The charge is tiered: 2% for the first $20 billion of stablecoins outstanding, and 1% for amounts exceeding $50 billion. This means a bank with $60 billion in stablecoins would need to hold approximately $800 million in capital. This buffer is designed to ensure issuers can absorb losses from operational failures, fraud, or technical glitches.
A Dual Pathway: Direct Issuance or Separate Subsidiaries
The framework offers two entry points. Alongside direct issuance by banks, a separate proposal would allow certain state member banks to establish subsidiaries dedicated to issuing payment stablecoins. Drawing from concepts in the GENIUS Act, this path would require the Fed to make a decision on a "substantially complete" application within 120 days, providing clarity for potential entrants.
Top Regulator's Focus: Redemption Reliability and AML Gaps
Vice Chair for Supervision Michael Barr highlighted the overarching goals. He stressed that stablecoins must be reliably redeemable at par value in a timely manner, even under stress or if the issuer encounters trouble. The final rule must clearly establish this "universal redemption right."
Barr also raised concerns about the proposed threshold for anti-money laundering (AML) enforcement. The draft suggests that AML deficiencies must be "significant or systemic" to prompt regulatory action—a standard he worries might be too high, potentially weakening defenses against illicit finance.
The proposal is now open for public comment for 60 days following its publication in the Federal Register, marking a significant step in shaping the U.S. regulatory landscape for digital currencies.