Federal Reserve Refines Stablecoin Regulation Draft: 1:1 Reserves, Two-Day Redemption, and Weekly Reporting

The GENIUS Act begins to address daily valuations, redemption processing, capital measurement, and ongoing reporting.

Written by: Gangyu

On September 24, 2026, the Federal Reserve released two drafts for stablecoin regulation. The first draft outlines executable rules for reserve assets, redemption, capital, custody, and ongoing reporting; the second draft specifies how banks under Federal Reserve supervision can apply to establish stablecoin issuance subsidiaries. One year after the passage of the GENIUS Act, the regulatory framework for U.S. payment stablecoins, delineated by Congress, is now entering the operational aspects that issuers must face daily.

The draft is currently in the public comment phase, which will last for 60 days after the document is published in the Federal Register. The rules apply directly to payment stablecoin issuers and related banks under Federal Reserve supervision. These requirements will also serve as important references for banks, custodians, and institutional clients assessing stablecoin operations. Issuers will need to rearrange reserve accounting, redemption processing, risk measurement, and regulatory reporting, thus integrating compliance into daily operations.

1. 1:1 Reserves Broken Down into Daily Actions

Figure 1｜How 1:1 reserves translate into daily valuations, custody, and funding constraints

The GENIUS Act has already mandated that payment stablecoins be backed 1:1 by qualified assets. The Federal Reserve draft further clarifies how this ratio should be calculated and verified in daily operations. According to the proposed 12 CFR §247.11, issuers are required to record reserves at fair value at least once a day, by 5 PM in the time zone of the supervising Federal Reserve Bank, and ensure that the reserve value is not less than the redemption amount of the circulating stablecoins.

The range of assets eligible for the reserve pool is quite narrow, primarily including cash, balances held at Federal Reserve Banks, qualifying bank deposits, U.S. Treasury securities with a remaining maturity of no more than 93 days, eligible overnight repos and reverse repos, and specific money market funds. The logic here is straightforward: stablecoin holders may demand to exit at face value at any time, so reserves need to be convertible to cash in a short time frame, while minimizing the need for issuers to sell assets at a discount to meet redemptions.

Different reserve instruments will also correspond to different operational conditions. Bank deposits must meet the institutional and account requirements listed in the draft, repo transactions must use qualified collateral and face qualified counterparties, and money market funds can only invest in short-term assets allowed in the reserve pool. Therefore, issuers need to transparently identify the ultimate destination of funds. Even if labeled as "cash management products," if the underlying assets' maturity, counterparties, or liquidity do not meet the requirements, they cannot be counted as legal reserves.

Reserve management will thus shift from an asset allocation issue to a continuous funding operation. When issuance increases, issuers must simultaneously replenish qualified assets; when redemptions occur in concentration, they need to arrange cash and maturity structures; and when interest rates change, they must handle valuation fluctuations of short-term Treasuries and other reserve tools. Reserves exceeding legal requirements cannot be withdrawn at will. The draft allows issuers to report the excess portion at the end of the month after review and certification, permitting monthly withdrawals. This will reduce the flexibility of fund dispatch but can also minimize the space for issuers to temporarily replenish reserves on reporting days.

The proposed rules also specifically address the custody aspect. Institutions holding reserves for issuers need to distinguish the reserves from their own assets and maintain books sufficient to confirm each issuer's rights. The draft allows for the use of omnibus accounts, which are accounts held by custodians that concentrate multiple clients' assets, but internal records must continuously identify each client's share. When issuers need to call upon reserves to complete redemptions, the custody arrangements should also support timely asset release. For issuers, simply choosing an institution that "can hold Treasuries" is not enough; account structure, reconciliation frequency, and the operational path for retrieving assets must all be incorporated into contracts and system designs.

2. Redemption Timeline Turns Liquidity Commitment into Service Standards

Figure 2｜Key Steps from Redemption Request to Fiat Arrival

The proposed §247.12 requires issuers to publicly disclose their redemption policies and to complete payments no later than two business days after receiving valid redemption requests. The disclosed content must specify the method for submitting requests, applicable conditions, and processing procedures, and must be continuously provided through channels such as websites. This gives face value redemptions a clear timeline, allowing users to assess whether the issuer's commitments are genuinely fulfilled.

Two business days may seem generous compared to the instant transfer experience of many on-chain assets, but issuers face a process composed of off-chain bank accounts, reserve liquidation, identity verification, and sanctions screening. While stablecoins can be transferred on the blockchain around the clock, the redemption end still relies on bank operating hours and fiat payment systems. If issuers wish to expedite processing, they need to pre-arrange cash, automate compliance checks, and agree with banks and custodians on operational mechanisms for nights and weekends.

This rule will also shift the focus of stablecoin competition. In the past, the market found it easier to compare issuance scale, transaction depth, and the number of blockchains accessed. With the implementation of a unified redemption timeline, institutional clients will continue to inquire about average arrival times during normal periods, queuing mechanisms during stress periods, direct redemption thresholds, and fees for intermediary channels. Reserve quality answers "where is the money," while the redemption process answers "when can holders get their money back," and together they determine whether stablecoins can serve as payment tools.

The draft allows regulatory agencies to impose restrictions on redemptions in specific circumstances but does not leave issuers with broad discretion to suspend them. Federal Reserve Governor Michael Barr also specifically stated in a statement on the same day that the final rules should clearly articulate the universal right to redemption. The ability to pay out under stress scenarios, interest rate risks, and foreign exchange risks is expected to become the most concentrated topic of discussion during the comment period.

3. Capital Requirements Begin to Cover Credit and Operational Failures

The asset side of payment stablecoins is primarily composed of short-term, highly liquid instruments, and issuers' losses may also stem from system interruptions, private key management, cyberattacks, third-party service failures, and operational errors. These events can incur compensation, recovery, and legal costs. Therefore, the Federal Reserve has divided capital requirements into credit risk and operational risk in the proposed §247.15, requiring issuers to calculate them at different frequencies.

Credit risk capital is calculated daily, while operational risk capital is calculated quarterly. Newly established issuers must meet a minimum capital floor of $5 million, which will be adjusted according to U.S. nominal GDP. Regulatory agencies may require higher capital based on business scale and risk status. For newly established bank subsidiaries, this means they must prepare sufficient own funds to absorb costs from failures and disputes before stable revenue is established.

Capital rules will directly bring technology architecture into financial decision-making. If issuers rely on a single cloud service provider, a single custodian, or a few blockchains, the risk of business continuity may reflect in regulatory assessments; the more cross-chain issuances there are, the more complex the nodes, contracts, and reconciliation links become. The advantage of bank-affiliated issuers lies in their existing risk governance and funding base, while they must also face the integration costs between traditional core systems and blockchain infrastructure. The product experience of non-bank technology companies remains valuable, but entering the regulated issuance system often requires collaboration with banks, service outsourcing, or capital arrangements to integrate capabilities into this framework.

The draft also restricts misleading names and marketing. Issuers must not imply that stablecoins are backed by the U.S. government, federal deposit insurance, or other public credit guarantees, nor may they pay rewards solely because users hold, use, or retain stablecoins. The latter aligns with the GENIUS Act's restrictions on stablecoin earnings, and how it specifically applies to trading platform rewards, related party subsidies, and composite products will still affect the customer acquisition methods for stablecoins.

4. Weekly and Quarterly Reports Allow Regulation to See Operational Processes

Figure 3｜Regulatory Reporting and Capital Calculation Rhythm for Stablecoin Issuers

Stablecoin regulation has long relied on monthly reserve disclosures, with the public typically only able to see the asset composition at a certain point in time. The proposed §247.14 advances regulatory reporting to a higher frequency: issuers are required to submit confidential operational data weekly, quarterly financial status and income reports, certified by the Chief Financial Officer and the Board of Directors; anti-money laundering and sanctions compliance must also form annual certifications.

The significance of weekly reports is that regulatory agencies can continuously observe issuance volume, redemptions, reserve changes, and operational anomalies without waiting until the end of the month. Issuers' financials, on-chain monitoring, client systems, and custody accounts need to use consistent data standards. If the on-chain circulation volume cannot be reconciled with the internal liability ledger in a timely manner, issues will quickly appear in the weekly reports. Thus, the data engineering of stablecoin companies becomes part of the compliance infrastructure.

High-frequency reporting will also increase the accountability density of the Board of Directors and management. After management certification, data discrepancies in quarterly reports will be difficult to simply attribute to technical issues. Issuers need to clarify which system generates the legal standards, who reviews reserves and circulation, how anomalies are escalated, and how to handle delays in third-party data. For projects issuing on multiple chains, a unified token minting, burning, and cross-chain transfer ledger will become the starting point for regulatory inspections.

Barr also pointed out that deficiencies in anti-money laundering practices would only trigger certain proposed standards for regulatory or enforcement actions if they reach a "significant or systemic" level, which could weaken the effectiveness of daily oversight. This controversy reminds the market: reserve and capital rules are responsible for the financial safety of stablecoins, while customer identification, transaction monitoring, and sanctions screening are responsible for the legality of funds entering and exiting the system. Both sets of controls need to work within the same operational chain.

5. Banks Have a 120-Day Regulatory Clock for Applications

The second draft specifically designs the application process for stablecoin issuance subsidiaries for banks under Federal Reserve supervision. Application materials include business plans, financial information, governance arrangements, risk management, reserve and redemption plans, etc. After receiving the materials, the Federal Reserve will determine within 30 days whether the application is basically complete; once complete, a decision will generally be made within 120 days, and if the deadline is exceeded without a decision, the law sets a mechanism for deemed approval.

The clear time limit reduces one uncertainty when banks assess projects. In the past, banks often entered stablecoin business through custody, reserve banking, or technology partnerships, and whether to issue independently depended on regulatory communication and internal risk preferences. Now, banks can arrange capital, technology, and partners around a publicly available list of materials, and they can also incorporate the approval cycle into product planning.

The 120-day regulatory clock starts counting from the completeness of the materials, while the preparatory work beforehand still determines the overall project speed. Banks need to clarify target customers, expected issuance scale, the blockchain used, smart contract management, reserve custody, redemption channels, and exit plans in advance, and integrate these arrangements into existing risk governance. If technology is provided by external companies, the application materials must also explain subcontracting relationships, data access, fault recovery, and the control rights retained by the bank. Thus, stablecoin projects will be reviewed like a complete banking product rather than simply purchasing a blockchain system.

The application process will not lead all banks to choose to build their own stablecoins. Issuance requires bearing the costs of reserve operations, redemption customer service, on-chain security, compliance monitoring, and multi-party access. Some banks are more likely to join shared issuance networks, while others will continue to provide reserves, custody, and fiat channels to existing issuers. Large payment companies and technology platforms may seek bank subsidiaries or regulated partners to combine their distribution networks with the compliance capabilities of banks.

6. Stablecoin Competition Begins to Shift Towards Operational Capabilities

The most significant change in this draft from the Federal Reserve is the disaggregation of "safe stability" into a series of observable, reportable, and accountable daily actions. Short-term Treasuries remain the mainstay of reserves, but the differences between issuers will increasingly manifest in cash management, redemption speed, system resilience, data consistency, and banking collaboration networks. The larger the scale, the more difficult it becomes to rely on temporary manual processing.

The rules will also affect the industrial division of labor in the stablecoin market. Banks possess capital, accounts, and compliance systems; technology companies are familiar with blockchain, wallets, and developer interfaces; and payment institutions master merchant and cross-border networks. A complete issuance system needs to connect these three types of capabilities. Ultimately, the market may see a few direct issuers and a batch of institutions providing services around reserve custody, compliance technology, on-chain monitoring, and distribution channels.

The competition among these service providers will also become more specific. Custodians need to provide daily valuations, asset identification, and rapid release capabilities; on-chain monitoring companies need to convert address activities into account data usable by issuers and regulators; payment channels need to shorten the time it takes for stablecoin redemptions to enter bank accounts. Even if issuers outsource a certain link, they still need to explain the final data in weekly reports and quarterly certifications. Systems that can connect on-chain circulation, reserve accounts, and customer redemption records will become an important foundation for stablecoin operations.