On July 18, 2025, President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the GENIUS Act) into law. 

The GENIUS Act erects a new regulatory framework for payment stablecoins that will impact the financial services sector in a variety of ways. In this article, we outline the new regulatory framework and identify some initial policy risks for bankers to consider.

Stablecoins are blockchain-based cryptocurrencies. Blockchain is digital ledger technology that allows for transactions to be recorded in an encrypted, shared ledger in accordance with established network policies. But unlike bitcoin and other untethered investment cryptocurrencies that use blockchain technology, stablecoins are asset-backed tokens intended to hold a stable dollar value on a 1:1 basis with maintained reserves of cash, short-term Treasuries and other permitted assets. The GENIUS Act governs payment stablecoins, which are stablecoins that are intended to be used for payment while maintaining a fixed value and a right to redemption. Stablecoins are intended to facilitate 24/7 transaction settlement, permitting parties to instantly move money anywhere in the world at any time for very little cost. They are used in connection with merchant payments, business-to-business payments and cross-border transfers. 

Time will tell how readily the consumer and business communities in our region will adopt these assets. The ramifications for the financial services sector could be transformational, with potentially significant downward pressures on income-deriving activities like extending credit. 

The following discusses the key rules set out in the GENIUS Act.

First, payment stablecoin issuers must qualify as one of the following kinds of entities: (i) a non-bank licensee of the Office of the Comptroller of the Currency (the OCC) who is authorized to issue stablecoins; (ii) a subsidiary of an insured depository institution or insured credit union that is supervised by a primary federal regulator (i.e., the Federal Reserve, the FDIC and the OCC); or (iii) a state qualified issuer approved by a state payment stablecoin regulator that complies with federal requirements. Issuers must comply with the provisions of the Bank Secrecy Act, even if the issuer is a nonbank entity.

Second, all stablecoin issuers must maintain an asset reserve that equates to the value of the stablecoins issued. This is referred to as 1:1 reserve backing. The reserve assets may consist of U.S. dollars, federal reserve notes, funds held at certain insured or regulated depository institutions, certain short-term Treasuries and Treasury-backed reverse repurchase agreements, and money market funds. Each issuer must provide monthly public reporting on its website as to the composition of its reserve portfolios. 

Third, stablecoin issuers are required to offer redemption or repurchase of their issued stablecoins for a fixed amount of monetary value. Redemption policies must be publicly disclosed and provide clear procedures for the timely redemption of outstanding stablecoins. Any fees associated with purchasing or redeeming stablecoins must also be disclosed clearly. Furthermore, stablecoin issuers cannot pledge the reserved assets that underpin the payment stablecoins, unless the pledges are for the purpose of creating liquidity to satisfy reasonable redemption expectations. Pending regulations are expected to clarify further requirements for redemption. 

Fourth, importantly for banks, stablecoin issuers are not permitted to pay any interest on the stablecoins they issue. But the GENIUS Act leaves open the possibility of an issuer partnering with third parties to offer other kinds of financial rewards or incentives to such issuer’s coinholders. We anticipate that the contemplated regulations will provide further guidance in this area. Recent comments from the OCC suggest that federal regulators may not feel compelled to implement restrictions on stablecoins that receive interest-like benefits. Bankers should keep apprised of developments in this area and work with advocacy groups to preserve the value of this statutory limitation.

Finally, stablecoin issuers may not comingle reserve assets backing stablecoins with other assets or use deceptive terms in marketing, such as representing that their stablecoins are backed by the full faith and credit of the U.S., guaranteed by the U.S. government or covered by federal deposit insurance. Misrepresentation is subject to civil penalties.

With these rules in mind, what impact could payment stablecoins have on a bank’s traditional deposit-taking and lending functions?

Mainstream adoption of stablecoins could shift dollars out of bank deposits and into stablecoin wallets and Treasuries. This would likely reduce the available credit supply because dollars that would otherwise fund lending through bank deposits would migrate to cash or government securities that are not used for extending credit within a bank’s market. 

Additionally, mass redemptions of stablecoins that mirror traditional bank runs could result in reserves migrating quickly out of banks that are holding deposits for stablecoin issuers. Maintaining public confidence in stablecoins is critical to preventing runs on issuers. Unlike a bitcoin valuation crash, a run on stablecoin issuers would have a significant market impact because it could cause either a mass sale of Treasuries, thereby depressing the market price of Treasuries, or a second order run on banks to the extent that stablecoin reserves are stored with depository institutions. 

Regardless of whether banks elect to issue stablecoins themselves, many will have customers who seek to use stablecoins for regular transactions, especially companies that regularly engage in international trade. Understanding these rules and the operational mechanics of payment stablecoins will be crucial for banks to serve such customers. 

The GENIUS Act represents the federal government’s first significant foray into cryptocurrency regulation. Importantly, the primary federal regulators will issue regulations addressing several key components of the act in the months ahead. The GENIUS Act takes effect on the earlier of Jan. 18, 2027, or 120 days after the primary federal stablecoin regulators issue final regulations. These regulations must be issued by July 18, 2026. 

Between now and then, bankers should stay informed about payment stablecoin developments and remain involved with their local banking associations. Bankers should continue to educate themselves on the potential impact of stablecoins on core banking functions. They should also advocate to hold the line on the prohibition of yield-bearing stablecoins. Among other things, this will mean seeking additional prohibitions on third-party alternatives (or workarounds) to the interest prohibition, such as rewards programs for the holders of certain stablecoins.