Three Regulators Give Banks Three Paths to Issue Stablecoins

The Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corp. (FDIC) have each outlined their plans for overseeing banks that issue stablecoins, providing three potential paths for financial institutions to enter the digital dollar market. The proposed regulatory frameworks differ in terms of the type of bank involved (national, state member, or insured state bank) and the specific requirements for issuing and supervising stablecoins.

Under the Fed's plan, supervised issuers would be required to fully back their payment stablecoins with highly liquid assets, such as short-term Treasury bills, and adhere to capital and risk management standards. The Fed also proposed rules for safeguarding the reserves of these stablecoins. In a separate proposal, banks seeking approval for an issuing subsidiary would need to submit a business plan and financial information, and both proposals are currently open for public comment.

The OCC's framework, announced in February, focuses on jurisdictions where the OCC has authority, including subsidiaries of national banks. It covers various aspects, such as reserves, redemption, custody, applications, reporting, and supervision for issuers. The agency also proposed weekly and quarterly reporting forms to facilitate the oversight process. In June, the OCC expanded its proposal to include additional requirements for reserve management and reporting.

The FDIC, on the other hand, proposed its framework in April, addressing reserves, redemptions, capital, risk management, and custody for issuers it supervises. The FDIC's proposal also includes provisions related to insurance treatment for deposits held as stablecoin reserves, clarifying that a tokenized deposit remains a deposit if it meets the legal definition.

This proposal builds upon a separate FDIC proposal from December, which outlined the application process for insured banks seeking to issue stablecoins through subsidiaries.

These three proposals, which are all implemented under the GENIUS Act, provide banks with distinct options for entering the stablecoin market. Each agency's regulatory approach has its own set of requirements, and banks will need to carefully evaluate these factors when deciding which path to pursue. Factors such as the cost of holding reserves, maintaining capital, arranging custody, filing reports, and managing payment and redemption processes will play a significant role in determining which regulatory framework a bank chooses to adopt.

Ultimately, commercial demand for stablecoin services may be just as influential as the regulatory landscape in shaping the decisions of financial institutions considering digital dollar issuance.