FDIC to Propose First Stablecoin Issuer Framework Under GENIUS Act This Month: A Watershed for Crypto Regulation

A Landmark Regulatory Milestone Approaches as U.S. Authorities Move to Formalize Rules for Bank-Issued Stablecoins

In a definitive step toward establishing a federal regulatory regime for digital assets, the U.S. Federal Deposit Insurance Corporation (FDIC) is poised to propose its first application framework for stablecoin issuers later this month. This action, confirmed by FDIC Chairman Travis Hill, represents the initial major rulemaking to implement the recently enacted GENIUS Act, setting the stage for a structured oversight system for payment stablecoins issued by insured depository institutions. The forthcoming proposal marks a critical inflection point, transitioning stablecoin regulation from a patchwork of state guidance and enforcement actions to a formal federal licensing and supervisory framework.

The GENIUS Act: The Foundation for Federal Stablecoin Oversight

The Generating New Opportunities for Users and Stabilizing Ecosystems in the United States (GENIUS) Act, signed into law earlier this year, serves as the legislative bedrock for this new regulatory era. The act delineates clear roles for multiple federal and state agencies in overseeing stablecoin issuers operating within the United States. According to Chairman Hill’s written testimony prepared for the House Financial Services Committee, the FDIC’s mandate under this landmark law is specific: it will be responsible for licensing and supervising subsidiaries of insured depository institutions that issue payment stablecoins.

This represents a significant clarification of jurisdictional boundaries. By assigning primary oversight of bank-issued stablecoins to the FDIC, the GENIUS Act provides a direct path for traditional financial institutions to engage in digital asset innovation with a known regulator at the helm. The FDIC has now begun the work to promulgate rules to implement the act, with Hill stating, “We expect to issue a proposed rule to establish our application framework later this month and a proposed rule to implement the GENIUS Act’s prudential requirements for FDIC-supervised payment stablecoin issuers early next year.” This two-phased approach—first establishing how entities can apply, then defining the ongoing standards they must meet—is a standard yet crucial regulatory process.

Decoding the FDIC’s Forthcoming Framework: Application and Prudential Standards

The imminent proposal will focus on creating a clear application framework. This is the procedural gateway through which bank subsidiaries must pass to receive approval to issue payment stablecoins. While the precise details will be unveiled in the proposal, such frameworks typically outline necessary documentation, corporate governance structures, risk management plans, and technological competency requirements that applicants must demonstrate.

The more substantive prudential rules, expected in early 2024, will establish the ongoing operational guardrails for licensed issuers. As outlined by Chairman Hill, these will include:

• Capital Requirements: Mandating that issuers hold a minimum level of capital to absorb potential losses.
• Liquidity Standards: Ensuring issuers maintain highly liquid assets to meet redemption requests promptly, a core tenet of stablecoin integrity.
• Reserve Asset Diversification Standards: Governing the composition and risk profile of the assets backing the stablecoin, aimed at mitigating concentration risk.

In developing these standards, the FDIC is incorporating recommendations from the President’s Working Group on Digital Asset Markets, which in July advised regulators to clarify permissible banking activities related to asset and liability tokenization. This indicates a regulatory philosophy seeking to align new digital asset activities with established banking principles of safety and soundness.

Parallel Tracks: The Federal Reserve’s Role and Broader Agency Coordination

The FDIC is not operating in isolation. The House Financial Services Committee hearing also featured testimony from Federal Reserve Vice Chair for Supervision Michelle Bowman, who confirmed the central bank’s parallel work with other banking regulators. Their collective goal is to develop consistent capital, liquidity, and diversification standards for stablecoin issuers as mandated by the GENIUS Act.

Bowman emphasized the need for systemic clarity, stating, “We also need to provide clarity in treatment on digital assets to ensure that the banking system is well placed to support digital asset activities. I think this includes clarity on the permissibility of activities, but also a willingness to provide regulatory feedback on proposed new use cases.” This highlights a coordinated inter-agency effort to create a cohesive regulatory environment that neither stifles innovation nor compromises financial stability.

Other agencies are also advancing their mandates under the same law. The Treasury Department, for instance, has already progressed with its own rulemaking processes, including public consultations that concluded in November. This multi-agency rollout underscores the comprehensive nature of the GENIUS Act, which apportions specific responsibilities across the existing financial regulatory architecture rather than creating an entirely new agency.

Beyond Stablecoins: Guidance on Tokenized Deposits and Bank Asset Tokenization

Chairman Hill’s testimony revealed that the FDIC’s vision extends beyond just payment stablecoins. The agency is proactively developing guidance to clarify the regulatory status of tokenized deposits. Tokenized deposits are digital representations of traditional bank deposits on a blockchain or distributed ledger, potentially enabling faster settlement and programmable functionality while remaining a direct liability of an insured bank.

Furthermore, the agency is considering guidance related to bank asset tokenization—the process of creating digital tokens that represent ownership of real-world assets like loans or securities on a ledger. By working on these fronts concurrently, the FDIC signals an intent to provide a holistic regulatory pathway for banks exploring various facets of blockchain-based finance, from liability-side innovations (stablecoins, tokenized deposits) to asset-side transformations (tokenized loans).

The Road Ahead: Rulemaking Process and Industry Implications

Following its release later this month, the FDIC’s proposed application framework will enter a standard notice-and-comment period. The agency will seek and review public comments from industry participants, consumer advocates, and other stakeholders before finalizing the rule—a process that typically spans several months. This period will be critical for banks and potential issuers to shape the final regulatory landscape through detailed feedback.

The establishment of a formal federal framework stands in contrast to the previous state-by-state approach exemplified by regulations like New York’s BitLicense and specific trust company charters. It also provides a potential federal alternative to issuing stablecoins under state-chartered limited purpose trust or special purpose depository institution licenses, which some existing crypto-native companies have pursued.

Strategic Conclusion: Paving a Definitive Path for Institutional Crypto Adoption

The FDIC’s impending proposal is more than just another regulatory announcement; it is the activation of a major component of the first comprehensive federal digital asset law in the United States. By constructing a licensed pathway for insured banks to issue payment stablecoins, U.S. authorities are methodically building infrastructure intended to bring significant elements of the crypto ecosystem within the perimeter of regulated finance.

For readers and market participants, the key developments to monitor are:

1. The specific text of the FDIC’s proposed application framework when released later this month.
2. The subsequent publication of prudential rules on capital and liquidity in early 2024.
3. The evolving guidance on tokenized deposits, which could redefine core banking operations.
4. The harmonization of rules across the FDIC, Federal Reserve, and Treasury Department.

This coordinated regulatory push aims to mitigate systemic risk, protect consumers, and provide legal certainty. In doing so, it seeks to foster an environment where traditional financial institutions can confidently engage with digital asset technologies. The success of this framework will ultimately be measured by its ability to balance innovation with stability, shaping the next chapter of both banking and cryptocurrency in America.