In November of 2021, the President’s Working Group on Financial Markets, joined by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), issued a report formally recommending that Congress enact legislation to create a comprehensive regulatory framework for stablecoin issuers operating within the United States. Since that time, members of Congress have engaged in bipartisan negotiations to develop a bill that would achieve this objective, but until recently have made limited progress.
In early February, Senate Banking and House Financial Services Committee (HFSC) Chairmen Sen. Tim Scott (R-SC) and Rep. French Hill (R-AR) each released separate bills aimed at creating a federal regulatory framework for stablecoins. A few days later, HFSC Ranking Member Maxine Waters (D-CA) released her own draft legislation with the goal of laying the groundwork for negotiation with Chairman Hill. Both the Senate Banking Republican bill, the GENIUS Act, and the HFSC Republican bill, the STABLE Act, have now each received congressional hearings, and on March 14, the Banking Committee passed the GENIUS Act by a vote of 18-6, with five of the committee’s 11 Democrats voting with Republicans to advance the bill.
All three proposed bills offer similar regulatory structures, having been built on the past several years of congressional efforts to develop legislation. They each offer a regulatory regime that is roughly parallel to the state and federal regulatory regime applied to U.S. depository institutions. However, the three bills contain a number of key differences. Many of these differences reflect longstanding areas of disagreement that have prevented lawmakers from successfully advancing any legislation to date. A primary example of this is the debate over the extent to which state-licensed stablecoin issuers should be subject to supervision by federal financial regulators.
With Republicans maintaining majorities in both the House and Senate, it is unlikely that the discussion draft offered by Ranking Member Waters will serve as the core text of a stablecoin framework that is likely to advance in the current Congress. Therefore, the following discussion focuses largely on the key differences between the GENIUS Act and STABLE Act. However, a number of areas where these two bills diverge from the Waters discussion draft reflect ongoing areas of debate that will remain relevant as these proposals move forward. These topics are also highlighted below.
Overview
The GENIUS Act, Stable Act and Waters’ bill contain a number of core structural elements that are functionally the same across all three pieces of legislation. All three would require any entity seeking to issue payment stablecoins in the United States to first be registered with a financial regulator and comply with the oversight requirements established by the legislation. They each provide a regulatory framework for stablecoin issuers that are a subsidiary of an insured depository institution (IDI) as well as “nonbank” stablecoin issuers that are not affiliated with an IDI. They also establish avenues for stablecoin issuers to be regulated at the state level, albeit with varying degrees of oversight by federal financial regulators.
Under each bill, stablecoin issuers would be required to hold sufficient assets in reserve to guarantee that the tokens they issue maintain a fixed one-to-one dollar value. Issuers would also be required to issue monthly public reports disclosing key financial metrics regarding composition of its portfolio of reserve assets as well as the number of stablecoin tokens outstanding, with additional requirements for a third-party accounting of these metrics to be provided to regulators. Each of the bills would require issuers to provide ongoing public reports of their redemption policies available to stablecoin holders. Stablecoin issuers would also be subject to specific prohibitions regarding the commingling of customer assets with proprietary assets, as well as limitations on engaging in lending and other business activities that might pose a risk to reserve assets.
State and Federal Regulatory Oversight
A key area where the proposals differ, however, is in their approach to assigning primary supervisory and enforcement responsibility to state and federal financial regulators. The GENIUS Act and STABLE Act provide broader flexibility for both IDI subsidiary and nonbank stablecoin issuers to operate as state-qualified issuers. Under the GENIUS Act, all IDI subsidiary stablecoin issuers would be required to apply for approval to operate through the same federal banking regulator that is primarily responsible for oversight of its parent IDI. However, if the subsidiary has a “market capitalization” of less than $10 billion, it would have the option of choosing to operate under a state oversight regime as long as that state’s regime is substantially similar to the federal framework. A parallel framework would apply to nonbank issuers, however, those issuers that exceed the $10 billion threshold would be regulated and supervised exclusively by the OCC. The bill also provides state regulators with an option to transfer oversight authority to the Federal Reserve. Further, the bill provides the Federal Reserve and the OCC authority to carry out enforcement actions targeting state-regulated issuers in “exigent” circumstances.
The STABLE Act would apply similar standards with several variations. IDI subsidiary issuers would also be required to apply and be approved through the primary federal banking regulator of their parent, and nonbank issuers would need to undergo the same process through the OCC. Like the GENIUS Act, both categories of issuers would be provided the option to operate as state-qualified stablecoin issuers with primary regulatory oversight conducted by state regulators as long as the state regulatory regime “meets or exceeds” the standards established by the bill. The STABLE Act is somewhat less clear, however, regarding the extent to which the primary federal banking regulators would have rulemaking and supervisory authority that would apply to state-regulated IDI subsidiaries. Similar to the GENIUS Act, the STABLE Act would provide state regulators with the option to invite the Federal Reserve and OCC to participate in supervision and enforcement of state-regulated stablecoin issuers. For credit unions, many stakeholders have supported the recognition of the role that credit union service organizations (CUSOs) can play in issuing stablecoins and the unique regulatory regime of the National Credit Union Administration (NCUA). However, Section 6(a)(1)(A) of the STABLE Act provides a direct grant of vendor authority to NCUA, something that the industry has identified as problematic as a whole. The GENIUS Act arguably provides less of a direct grant of authority to supervise credit unions by acknowledging CUSOs’ relationship to NCUA through an insured credit union that has an ownership interest or to which the insured credit union has extended a loan.
Reflecting on another parallel to the GENIUS Act, federal banking regulators would also be permitted to take enforcement actions against state-regulated stablecoin issuers in the event of “exigent circumstances,” after giving five days’ notice to the relevant state regulators.
In contrast to these two frameworks, the draft legislation put forward by Ranking Member Waters does not provide a pathway for IDI subsidiary issuers to be regulated primarily at the state level. Instead, all IDI subsidiary issuers would be overseen by the primary federal banking regulator of their parent institution. Nonbank stablecoin issuers would be given the option to be regulated at the federal level with the Federal Reserve acting as a primary regulator or at the state level, but with supplementary oversight by the Federal Reserve. Similar to the GENIUS Act and STABLE Act requirements for nonbank state-regulated issuers to apply for registration through the OCC, the Waters bill would require these issuers to submit a registration with the Federal Reserve at the same time as they file a registration application with state regulators. Unlike the other proposals, this bill expressly mandates that state-regulated issuers be subject to coordinated oversight by both state regulators and the Federal Reserve. It does, however, require the Federal Reserve to also provide advanced notice to a state regulator before carrying out an enforcement action.
While these variations across the three bills are only part of a longer list of distinctions between the proposals, they represent perhaps one of the most significant policy hurdles lawmakers face in achieving a bipartisan consensus. Given Republicans’ relatively slim three-seat majority in the Senate, further compromises around these issues may be necessary to achieve the 60 votes necessary to overcome a potential Democratic filibuster and pass a bill on the Senate floor. However, the GENIUS Act has taken a significant step towards resolving this debate by creating a clear threshold at which stablecoin issuers would be required to be regulated at the federal level. This was demonstrated by the notable support of five Senate Democrats during Senate Banking Committee consideration of the bill.
Limitations on Nonfinancial Institution Ownership
Neither the GENIUS Act nor the STABLE Act address the issue of ownership of a stablecoin issuer by a nonfinancial commercial entity. This issue has been a longstanding subject of debate within U.S. banking policy discussions. The Waters bill includes a specific provision designed to maintain the traditional separation between banking and commerce. This provision mandates that the Federal Reserve establish regulations prohibiting nonfinancial commercial companies—such as major technology firms like Facebook, Google and X—from owning or controlling stablecoin issuers. The intent behind this measure is to prevent large commercial entities from leveraging stablecoin issuance to extend their market dominance into the financial sector, thereby mitigating potential risks associated with the blending of commercial and financial activities.
Bankruptcy Resolution
A key difference between the GENIUS Act and STABLE Act is that the GENIUS Act grants stablecoin holders priority claims in bankruptcy, whereas the STABLE Act does not address bankruptcy protections. While the Waters bill also includes a grant of priority for claims of stablecoin holders in the event of an issuer’s bankruptcy, it goes further by providing federal regulators with specific authority to appoint a receiver and prohibits any federal regulator from acting in the role of a conservator for the issuer.
Securities and Commodities Classifications
The GENIUS Act includes provisions to clarify that payment stablecoins are not securities by amending federal securities laws, though it remains ambiguous on whether they qualify as commodities. While the STABLE Act also excludes payment stablecoins from securities classification, it does not address their status as commodities.
Illicit Finance
All three bills would categorize stablecoin issuers as financial institutions under the Bank Secrecy Act, creating requirements for issuers to establish compliance and reporting programs around anti-money laundering, countering terror financing and other forms of illicit financial activity. The GENIUS Act goes further, however, to include provisions prohibiting individuals convicted of felony insider trading, embezzlement, cybercrime, money laundering, terrorist financing or financial fraud from holding the position of officer or director at a stablecoin issuer.
Custody
The issue of providing a regulatory framework for financial institutions providing custody for customers’ stablecoin holdings has represented a somewhat unique challenge for stablecoin legislative proposals. This is because the regulatory requirements that would be relevant to these custodians are generally distinct from those applicable to stablecoin issuers. The GENIUS Act addresses this question by authorizing stablecoin issuers to provide custodial services. With regard to financial institutions and service providers that are not stablecoin issuers, the bill does not explicitly authorize them to provide custodial services. Instead, it establishes a number of specific requirements that would apply to any entity that provides custodial services. Simultaneously, the bill clarifies that none of its provisions prohibit any depository institution, federal or state credit union, national bank, etc., from providing custodial services allowed by current law. This section of the bill also directs federal regulators to review existing guidance and regulations to clarify whether regulated institutions are allowed to engage in providing custody of stablecoins and other stablecoin services. As an example, this has been a challenge for federal credit unions. To date, guidance from the National Credit Union Administration (NCUA) has maintained that federal credit unions are not authorized the custody of customers’ digital assets despite the fact that neither the Federal Credit Union Act (FCUA) nor any NCUA regulation prohibit this activity.
The STABLE Act includes a broadly similar framework for the regulation of providers of stablecoin custodial services. Specifically, it established stablecoin custody as one of several limited activities that stablecoin issuers are allowed to engage in, as well as creating specific regulatory requirements for any entity involved in providing custody of stablecoins. Similarly, it clarifies that the bill does not create any prohibition on depository institutions, including federal and state credit unions, from providing custody of stablecoins. However, it does not include the directive for federal regulators to review and potentially revise guidance and regulation to clarify whether regulated entities are authorized to provide custodial services of stablecoins.
Conclusion
As Congress continues to debate the best path forward for stablecoin regulation, the differences between the GENIUS Act, the STABLE Act and Congresswoman Waters’ draft bill reflect broader policy questions about the role of federal and state regulators, ownership restrictions and financial protections for stablecoin holders. While there is growing bipartisan recognition of the need for a clear regulatory framework, key areas of disagreement—such as the extent of federal oversight over state-licensed issuers and restrictions on commercial ownership—remain significant hurdles to finalizing legislation. However, the passage of the GENIUS Act out of the Senate Banking Committee with bipartisan support signals that compromise may be possible. As lawmakers continue negotiations, the outcome of these discussions will have far-reaching implications for the future of digital payments, financial stability and the broader crypto ecosystem in the United States.
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