On July 18, 2025, President Trump signed into law the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”), after it passed both the U.S. Senate by a vote of 68-30 and the U.S. House in a 308-122 vote. The bill creates a regulatory structure for the issuance and oversight of payment stablecoins in the United States. Payment stablecoins are a digital asset often used in crypto markets that is pegged to a fixed monetary value (like one U.S. Dollar) which is reliably redeemable for that pegged asset and reliably maintains a value consistent with the underlying pegged asset, and therefore is intended to function like cash, including similar features to cash such as instant payment and settlement between parties, no intermediaries for payments, and enhanced privacy.
The Act presents both competition and opportunities for banks who will see new entrants in digital payments solutions and the consumer transactional account space, while at the same time opening up innovation potential. Current leading use cases for payment stablecoins include more efficient cross-border payments and a stable asset for use in the volatile cryptocurrency trading markets. Other near-term immediate uses include a 24x7 form of instant electronic payment with no credit risk that is faster when compared to today’s traditional electronic consumer payments—many of which settle over multiple days and are limited to traditional banking hours. It is expected that stablecoins will compete with bank demand deposits and money market mutual funds given their cash-like features and potentially lower interchange fees for payments and settlement; however, several factors also weigh against any major market disruptions.
First, there is significant market inertia in bank accounts and credit cards in the existing payment landscape—in fact, according to a survey earlier this year the average consumer keeps their primary checking account for 19 years.[1] Second, bank account and credit card payments offer important payment fraud protections, as ACH transactions are reversible under certain circumstances and credit card issuers offer enhanced fraud protections that significantly reduce their fraud risk, while stablecoin payments are both instant and largely irreversible. The Act itself also does not include deposit insurance for permitted payment stablecoin issuers, and is silent on whether nonbank payment stablecoin issuers are entitled to Federal Reserve master accounts. Lastly, statutory restrictions such as the prohibition on issuers to offer interest to stablecoin holders means that any major disruptions to the banking industry could still be far into the future, if at all.
Despite a number of key distinctions between nonbank stablecoin issuers and traditional insured banks, community banks should still be prepared to respond to new market entrants as they consider their stablecoin strategy, whether that be (i) maintaining the reserves backing stablecoins, (ii) facilitating payment stablecoin conversions, redemptions, and repurchases, (iii) providing custody for stablecoins, or (iv) issuing their own stablecoins through a bank subsidiary, a consortium of banks, or alternatively issuing their own tokenized bank deposits.
Overview of the GENIUS Act
Payment Stablecoins
The Act defines a “payment stablecoin” as a digital asset designed for payment or settlement which the issuer must at the option/request of the holder convert, redeem, or repurchase for a fixed monetary value, and which is expected to maintain a fixed monetary value. In addition, a payment stablecoin issuer is required to maintain reserves backing the stablecoin at a 1:1 ratio in the form of U.S. currency or other similarly liquid assets. Specifically, reserves must be held in (i) cash or money held at an account at a Federal Reserve Bank, (ii) demand deposits held at an insured depository institution, (iii) Treasury bills, notes, or bonds with a maturity of 93 days of less, (iv) money received under repurchase agreements, (v) reverse repurchase agreements, (vi) securities and money market funds invested solely in the preceding assets, (vii) other similarly liquid federal government-issued asset approved by the primary Federal payment stablecoin regulator, in consultation with the State payment stablecoin regulator, if applicable, of the permitted payment stablecoin issuer; or (viii) tokenized versions of any of the preceding liquid assets except for repurchase agreements and reverse repurchase agreements.
Payment stablecoin issuers must publicize their redemption policies, fees associated with purchase and redemption, and procedures for timely redemption (which can only be limited by the applicable regulator). Each issuer also must publish the reserves backing its stablecoins monthly on its website, including the total number of stablecoins issued and the amount and composition of each reserve backing those issuances. The monthly reports must be certified (under threat of criminal penalty) by the CEO and CFO of the issuer, and the prior month’s report must be examined by a registered public accounting firm.
Lastly, the Act explicitly prohibits payment stablecoin issuers from paying any form of interest or yield to holders solely in connection with holding, retaining, or using the stablecoin. It is possible that stablecoin issuers may find ways around this prohibition, such as by offering rewards or contracting with other companies who then provide yield to customers who agree to stake or lend their stablecoins.
Covered Issuers
The Act contemplates both federal qualified and state qualified payment stablecoin issuers. Federal qualified stablecoin issuers can be either (i) any nonbank entity (including a nonbank subsidiary of a chartered federal or state bank), (ii) an uninsured national bank, or (iii) a federal branch. State qualified stablecoin issuers can be any legal entity established under the laws of the state except they cannot be an uninsured national bank (or subsidiary), a federal branch (or subsidiary), or an insured depository institution or its subsidiary.
Federal issuers that are depository institution subsidiaries are supervised by the depository institution’s primary federal regulator,[2] while nonbank federal issuers would be supervised by the OCC. State issuers (which must stay under $10 billion in total stablecoin issuance to be eligible to opt for state oversight) are supervised by a state agency that has “primary regulatory and supervisory authority in the state over entities that issue payment stablecoins.”
In addition to meeting 1:1 reserve requirements, stablecoin issuers under the Act are limited in their stablecoin activities to the issuance and redemption of stablecoins, management of reserves, custodial and safekeeping services, and other activities that directly support the identified permissible activities.
Prospective payment stablecoin issuers (including both subsidiaries of insured depository institutions and nonbanks) must complete an application with their payment stablecoin regulator, and a decision on the application is required within 120 days of receipt of a complete application (or else the application is deemed approved). Any denial of an application must be due the applicant presenting risk of unsafe or unsound activities (and cannot be related to the issuing payment stablecoins on an open, public, or decentralized network), and must include an explanation to the applicant specifically citing the grounds for denial and how the application can address those grounds. The Act also provides an appeals process and hearings to contest denied applications.
Lastly, in response to concerns that large retailers could be entering the space, the Act includes additional standards for public U.S. non-financial companies seeking to issue stablecoins meant to prevent a blurring of the longstanding separation of banking and commerce in the U.S. bank regulatory regime. Under the Act, a public U.S. non-financial company[3] seeking to become a payment stablecoin issuer must receive a unanimous approval of the Stablecoin Certification Review Committee (the “Committee”), which is a three-person committee comprised of the Secretary of the Treasury, the Chair of the Federal Reserve (or the Vice Chair for Supervision if the Chair so delegates), and the Chair of the FDIC. This unanimous approval contrasts with a 2/3 vote in standard Committee reviews. Under the Act, the Committee must find that the non-financial company (i) will not pose a material risk to the safety and soundness of the banking system, the financial stability of the U.S., or the Deposit Insurance Fund, (ii) will not, without permission from a consumer, use nonpublic information about that consumer obtained from stablecoin transaction data to target, personalize, or rank advertising and other content, sell data to third parties, or share with non-affiliates, and (iii) complies with anti-tying prohibitions in the Act conditioning stablecoin issuance with the purchase of an additional product or service or agreement not to obtain a product or service from a competitor.
Addressing Capital, Liquidity, and Other Risks
Under the Act, federal and state regulators are required to impose on stablecoin issuers (i) capital requirements, (ii) liquidity standards, (iii) reserve asset diversification, deposit concentration, and interest rate risk management, and (iv) operational, compliance, and IT risk management standards. The standards, which also must include adherence to BSA/AML and OFAC sanctions compliance, are required to be limited only to the extent required by law and to allow stablecoin issuers to operate, issue, and redeem stablecoins, and should be tailored to the size and complexity of each issuer.
Bank-Specific Issues
The Act makes clear that it does not limit the existing authorities of depository institutions, including the authority to accept, receive, and issue tokenized bank deposits, use distributed ledger technology for books and records, and provide custodial services for payment stablecoins, private keys (akin to passwords) of payment stablecoins, or reserves backing payment stablecoins. The Act also makes clear that the federal banking agencies may not require depository institutions to include such assets held in custody on their balance sheets, and may not require additional regulatory capital to be held against such assets beyond the capital requirements applicable to stablecoin issuers.
State-Level Regulatory Regimes
Payment stablecoin issuers are permitted under the Act to opt for oversight by a state-level regulatory regime if they issue less than $10 billion in payment stablecoins. Importantly, however, the state-level regime is required to adopt a regulatory framework that is substantially similar to the federal-level framework subject to the Committee’s review and approval.
The Act requires each state regulator to, within one year from after the Act’s enactment, certify to the Committee that its regime meets the substantially similar criteria (the principles of which are to be written by the U.S. Treasury under notice-and-comment rulemaking), along with annual recertifications. The Committee, after a review of a certification, may reject the certification if a state regime is not substantially similar to the federal regulatory framework, and that decision will be appealable to the U.S. Court of Appeals for the District of Columbia Circuit.
Under the Act, state regulatory regimes have supervisory, examination, and enforcement authority over state payment stablecoin issuers, but also are permitted to contract with the Federal Reserve to allow the Federal Reserve to conduct those activities. In addition, each state regime is required to share information with the Federal Reserve regarding state issuers, including sharing a copy of the complete application by the issuer. Finally, in unusual and exigent circumstances (circumstances of which the Board must define in a regulation within 180 days of the enactment of the Act), the Federal Reserve is ultimately permitted to take enforcement actions against state payment stablecoin issuers (or affiliated parties of those issuers) for violations of the Act. Similarly, the OCC may take action in unusual and exigent circumstances (as defined by rule by the OCC) against state nonbank issuers.
Other Provisions
The Act also contains additional sections comparable to a complete bank regulatory regime, including:
- Consumer Protection. The Act requires issuers who engage in custodial and safekeeping services for payment stablecoins to strict segregation requirements and a prohibition on commingling a person’s payment stablecoins, cash, and other property with other funds of that person.
- Bank Secrecy Act and Sanctions Laws. The Act makes clear that permitted payment stablecoin issuers will be treated as financial institutions under the Bank Secrecy Act and all federal laws applicable to U.S. financial institutions relating to sanctions, anti-money laundering, and customer identification and due diligence. The Act directs the Secretary of the Treasury to implement related rules that will apply to payment stablecoin issuers that is tailored to the size and complexity of the issuers.
- Insolvency Protection. The Act explicitly notes that in the event of the insolvency of a permitted payment stablecoin issuer under the bankruptcy code, any payment stablecoin holder will have a priority claim with respect to the required payment stablecoin reserves over all other claims of the issuer.
- Interoperability. The Act requires the federal stablecoin regulators to consult with the National Institute of Standards and Technology to assess interoperability standards for payment stablecoins with other permitted payment stablecoin issuers and the “broader digital finance ecosystem, including accepted communications protocols and blockchains, permissioned or public.”
- Not Securities or Commodities and Not Investment Companies. The Act makes clear that payment stablecoins are not considered securities or commodities under the federal securities laws, and that permitted payment stablecoin issuers are not investment companies.
- Restrictions on Foreign Issuers. The Act makes clear that it is unlawful for foreign payment stablecoin issuers to offer or sell payment stablecoins that it issues in the United States unless it meets the technology capabilities required to comply with the Act and the U.S. Treasury Secretary has determined that the foreign country has a regulatory and supervisory regime for payment stablecoins that is comparable to the regime under the Act.
Effective Date
The Act will take effect upon the earlier of (i) 18 months after enactment or (ii) 120 days after the primary federal payment stablecoin regulators issue final regulations implementing the Act.
What’s Next?
With up to 18 months to prepare for implementation of the Act, banks should consider the best ways to take advantage of their existing relationships with consumers, access to digital payment systems, custodial and safekeeping authority, and decades of experience adopting and innovating with new technologies. Nutter’s Banking and Financial Services team can help banks navigate this process.
[1] See Karen Bennett, Bankrate.com, Survey: Many consumers stick with same bank accounts for decades, cite convenience as a factor (Mar. 10, 2025), available at https://www.bankrate.com/banking/checking-fees-survey/.
[2] These are, for subsidiaries of banks, the OCC, the Federal Reserve, or the FDIC, as applicable to the parent bank, and for federally insured credit unions and their subsidiaries, the NCUA.
[3] Non-financial company under the Act means it does not engage in any financial activities as defined in section 4(k) of the Bank Holding Company Act of 1956, as amended.
