U.S. Banks Approved to Issue Stablecoins with FDIC's Implementation of GENIUS Act

The Federal Deposit Insurance Corporation (FDIC) has taken a significant step towards allowing U.S. banks to issue dollar-backed stablecoins. This follows the approval of a proposed rule outlining how banks, under FDIC supervision, can apply to participate under the GENIUS Act, a stablecoin regulation enacted earlier this year.

Key Takeaways

The FDIC has approved a proposal allowing certain banks to issue stablecoins through specific subsidiaries.
These banks must comply with a detailed application process and reserve requirements.
A temporary safe harbor has been established for early applicants.
The timeline for regulatory decisions is strict, with applications deemed approved by law if not acted upon within specified periods.
The implementation aligns with a more extensive regulatory rethink of the digital asset landscape in the U.S.

U.S. Banks Cleared to Issue Stablecoins as FDIC Moves to Implement GENIUS Act

This initiative marks the FDIC’s initial concrete move towards applying this legislation and signals a broader transformation in how U.S. regulators are integrating digital payment tools into the traditional banking framework.

Understanding the FDIC's Stablecoin Framework

Who's Included and Who's Excluded

The FDIC’s proposal, unanimously approved by its board, creates a formal application pathway for state-chartered banks to issue payment stablecoins through separately capitalized subsidiaries. This framework specifically targets state nonmember banks and state savings associations overseen by the FDIC.

These institutions will not be able to issue stablecoins directly on their main balance sheets. Instead, they can do so via a subsidiary that has received prior approval from the FDIC. The GENIUS Act specifies that only qualified entities, referred to as Permitted Payment Stablecoin Issuers, can issue such digital assets in the U.S.

Payment stablecoins are defined as digital assets designed for payments or settlements that maintain a stable value, typically backed one-to-one by cash or other highly liquid assets, such as U.S. Treasury securities. Importantly, the law clarifies that these stablecoins do not constitute deposits, legal tender, or securities.

FDIC's Comprehensive Application Process

The FDIC proposal outlines an extensive application process for banks. To gain approval, banks must submit written requests that detail the subsidiary's structure, the design of the stablecoin, and measures in place to maintain price stability.

Key elements that applicants must disclose include reserve composition, liquidity arrangements, overall capital levels, governance frameworks, redemption policies, and any reliance on third-party service providers. Additionally, the application must reveal information about ownership, management, and control. Approval may be denied if essential personnel have histories of serious financial misconduct.

A focal point of the proposal is reserve requirements. Stablecoins issued by approved subsidiaries must be fully backed on a one-to-one basis with clearly defined policies for reserve management and asset segregation. Furthermore, subsidiaries need to clarify how users can redeem stablecoins for U.S. dollars promptly and transparently, including fee structures and advance notices of any changes. Each issuer will also be required to maintain an independent public accounting firm to verify reserve amounts with monthly attestations.

Regulatory Timeline and Safeguards

What If Regulators Fail to Act?

The proposed rule sets a precise timeline to prevent regulatory delays. The FDIC will have 30 days to ascertain whether an application is substantially complete and 120 days to either approve or deny the request. Should the agency not act within these time limits, the application will automatically be approved by default.

Rejections of applications must be justified based on safety and soundness considerations, and applicants will have access to a specific appeals process. Notably, the proposal includes a temporary safe harbor, enabling early applicants to seek limited waivers for certain GENIUS Act requirements for up to a year.

The FDIC is set to accept public comments on this proposal for 60 days following its publication in the Federal Register.

This move is part of a broader re-examination of U.S. policies regarding cryptocurrencies and digital assets. Recently, the Office of the Comptroller of the Currency confirmed that national banks are permitted to engage in riskless principal transactions in cryptocurrencies, which allows them to facilitate trades for clients without holding an inventory.

In tandem, the Treasury Department is beginning to implement its regulatory responsibilities under the GENIUS Act, which includes overseeing non-bank stablecoin issuers.