Fed and FDIC Unveil New Regulatory Framework for Stablecoins

Federal Reserve Vice Chair for Supervision Michelle Bowman has signaled that U.S. bank regulators, including the Fed and the Federal Deposit Insurance Corporation (FDIC), are actively developing new capital and liquidity rules for stablecoin issuers. In prepared remarks to the House Financial Services Committee, Bowman emphasized the urgent need to align financial innovation with stability, fostering healthy competition among traditional banks, fintech firms, and crypto businesses.

The regulatory push is grounded in the recently passed GENIUS Act, which establishes a comprehensive legal framework for "payment stablecoins." This includes mandatory dollar-for-dollar reserve backing, redemption rights, public disclosures, and enhanced oversight. Bowman stated that regulators will collaborate to set prudential standards focused on capital, liquidity, and risk diversification, as required by the act.

Bowman acknowledged the ongoing dispute between crypto companies and banks over access to bank charters, with crypto firms seeking increased credibility and banks warning of unfair competition. She highlighted that new technologies can make banking more efficient and widen credit accessibility, but regulations must ensure a level playing field.

Additionally, Bowman mentioned efforts to complete bank capital measures, such as the Basel III Endgame. She revealed that the Fed has sent an updated Basel III plan to other regulators, which could ease capital proposals for major Wall Street banks, with estimates suggesting a 3% to 7% increase in requirements—lower than the 19% rise proposed in 2023.

The new stablecoin regulations aim to prevent past market crises, like the Terra/Luna collapse, by enhancing oversight and market integrity. This move is expected to attract institutional adoption by providing regulatory clarity, though it may spark mixed reactions from the crypto community regarding innovation constraints. Public commentary on the proposals is anticipated, with stakeholders seeing potential for further growth in decentralized finance.