U.S. Banks May Soon Issue Stablecoins as FDIC Proposes GENIUS Act Framework

U.S. banks could soon begin applying to issue payment stablecoins after the Federal Deposit Insurance Corporation (FDIC) unveiled a proposed approval framework. The move marks one of the first concrete regulatory steps to implement the GENIUS Act, a stablecoin law signed earlier this year.

FDIC Sets Stablecoin Approval Path for Banks

The FDIC board released a notice of proposed rulemaking outlining how banks can seek permission to issue stablecoins through subsidiaries. Following the proposed framework, a request for comments from the public has been created prior to its completion.

According to the program, the banks supervised by FDIC would include formal applications in which they would explain how their stablecoins will work. The regulator will focus on safety, soundness, governance, and controls of risk, and then grant approval.

The model is based directly on the GENIUS Act, creating a federal context for the regulation of payment stablecoins. The legislation expects stablecoins to be completely backed by fiat or equivalent liquid assets. Still, some experts warn that there is need for caution arguing that the safeguards in the GENIUS Act are not adequate.

Travis Hill, who is the Acting FDIC Chair, stated that the approach would be customized and not restrictive. He further said that the agency intends to carry out the assessment of risks without imposing unwarranted burdens on applicants.

What Will The FDIC Do With Bank Stablecoin Issuers?

Applications should outline ownership models, operations strategies and reserve management procedures. Engagement letters with registered public accounting firms also have to be provided by the applicants.

The big lenders are already testing its use. An example is the Citigroup partnerships with crypto companies for stablecoin payments.

The FDIC will consider a possible threat of the proposed activities to financial stability. It will not reject applications, unless that is considered that the stablecoin plans are unsafe or unsound.

In case regulators do not act, on time, the applications might be automatically granted. Future supervision is also stipulated in the proposal. Capital, liquidity and risk-management standards will be applied for approved issuers, while anti-money-laundering and sanctions compliance laws implemented.

Will Banks Rapidly Adapt to the FDIC Framework for Stablecoins? 

As the notice issued by the Federal Register states, the FDIC is anticipating that a relatively low numbers of banks would apply at the early stages. During this period, the agency expects to receive ten applications yearly.

The cost of application will be relatively low as opposed to traditional banking approvals. The proposal can also open a new source of revenue for many banks.

Compared to the traditional payment rails, stablecoins are less expensive and of transaction settlements are quicker and cheaper. This move also enables banks to compete directly with crypto-native issuers.

Recent events, like the RLUSD expansion on Coinbase‘s Layer-2 blockchain, indicate that regulated stablecoins are already gaining real-life use. The FDIC is currently seeking feedback and consultation from industry participants and the population.

Remarks on the final rule will influence how fast banks can enter the stablecoin market. Once it is finalized, it would be a significant advancement towards incorporating stablecoins into the mainstream banking system.