US banks moved closer to issuing stablecoins after the Federal Deposit Insurance Corporation approved a proposed rule under the GENIUS Act. The action outlines how FDIC-supervised institutions can apply to issue payment stablecoins.
The proposal marks the FDIC’s first concrete step to implement the stablecoin law signed earlier this year. It reflects a broader regulatory effort to integrate stablecoins into the US banking system.
The FDIC board approved the rule unanimously on Tuesday. The measure creates a formal application process for eligible banks.
The framework applies to state nonmember banks and state savings associations supervised by the FDIC. These institutions must obtain approval before issuing any stablecoin.
Banks cannot issue stablecoins directly from their balance sheets. They must issue them through separately capitalized subsidiaries.
The stablecoin issuance rules set under GENIUS Act
Each subsidiary must receive prior FDIC approval. Only approved entities may qualify as Permitted Payment Stablecoin Issuers. The GENIUS Act defines a stablecoin as a digital asset used for payments or settlement. The asset must maintain a stable value.
Stablecoins must be backed one-to-one by cash or highly liquid assets. US Treasury securities qualify as acceptable reserves. The law states that stablecoins are not deposits. It also excludes them from legal tender and securities status.
The proposed rule outlines detailed application requirements. Banks must describe the subsidiary structure and stablecoin design. Applicants must explain how the stablecoin maintains price stability. They must also detail liquidity management practices.
The FDIC requires disclosure of reserve composition and capital levels. Governance structures must also be explained. Banks are required to provide details about ownership and management. Approval by the FDIC may be denied if key persons have a serious financial criminal history.
The proposal focuses on reserve backing. Issuers have to ensure one-on-one support at all times. However, the subsidiaries are required to isolate the reserve assets and operational funds. They should also implement formal reserve management policies.
Additionally, the rule must have transparent redemption procedures. The issuers should describe the way users can redeem the stablecoins for US dollars. Banks are required to reveal any redemption charges. They are also required to provide prior notice of redemption changes.
FDIC enforces reserve audits and fast-track approval process
Every issuer has to employ an independent public accounting company. The company should update reserve balances monthly. So far, attestations should be done monthly to ensure that issued stablecoins are fully backed by their reserves. The FDIC will utilize these reports for continuous monitoring.
The proposal provides tight deadlines for regulatory action. FDIC takes 30 days to determine the completeness of applications. The agency then has 120 days to grant or refuse the request. Applications are automatically approved in case the FDIC fails to meet the deadline.
Moreover, the FDIC has the authority to reject applications based on safety and soundness concerns. Applicants may pursue an appeal through a formal process. The regulation also provides a temporary safe harbor for early applicants. This provision is limited to a waiver of up to 12 months.
However, the FDIC will accept any public comments within 60 days of their publication. Feedback can play a role in determining the rule. The proposal is in line with the new regulatory changes in US agencies. Regulators are tightening the interactions of banks with digital assets.
Last week, the Office of the Comptroller of the Currency (OCC) affirmed that banks can perform riskless principal crypto transactions. The direction enables banks to participate in trades without possessing crypto holdings.
The Treasury department is also starting to enforce its GENIUS Act responsibilities. These involve regulation of non-bank issuers of stablecoins.
Collectively, the actions are indicative of more definitive federal regulations on stablecoins. It has provided a clear direction on the entry of banks into issuing the stablecoins.