The Office of the Comptroller of the Currency (OCC) published a Notice of Proposed Rulemaking (NPRM) under Docket ID OCC-2025-0372, formally proposing regulations to implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). This proposal establishes a federal regulatory framework for national banks and federal savings associations seeking to operate as Permitted Payment Stablecoin Issuers (PPSIs).
The proposed rule creates a distinct “narrow bank” operating model for stablecoin activities, diverging significantly from traditional fractional-reserve banking. Under the proposed 12 CFR Part 15, PPSIs must fully back stablecoins with specific liquid assets on a one-to-one basis, strictly segregated from the bank’s other assets. The rule prioritizes redemption reliability and operational resilience over credit creation, aiming to mitigate run risk by effectively ring-fencing stablecoin liabilities.
Core objectives of the proposal include ensuring that stablecoins remain redeemable at par within two business days, enforcing a strict statutory prohibition on paying interest to holders, and mandating robust third-party risk management for distributed ledger technologies. By imposing high barriers to entry—including a unique 12-month operational expense liquid asset backstop and rigorous monthly CPA examinations—the OCC signals a supervisory preference for highly capitalized, institutionally robust issuers capable of managing the complex interplay between decentralized ledger technology and federal safety and soundness standards (OCC Proposes Rules to Implement GENIUS Act, 2026; Proposed Rule – Federal Register, 2026).
Permissible Activities and Strategic Constraints
The proposed rule rigorously defines the permissible scope of operations for a PPSI under proposed 12 CFR § 15.10. National banks and federal savings associations are restricted to eight enumerated activities, effectively preventing the commingling of stablecoin issuance with broader commercial banking activities like lending or proprietary trading.
Enumerated Permissible Activities
The rule explicitly authorizes PPSIs to engage in:
Issuance: Minting and issuing payment stablecoins.
Redemption: Redeeming stablecoins for fiat currency.
Reserve Management: Purchasing, selling, holding, and providing custodial services for reserve assets (e.g., U.S. Treasuries).
Custody Services: Safeguarding payment stablecoins, reserve assets, or the private cryptographic keys associated with them.
Fee Assessment: Charging fees for purchase or redemption.
Principal/Agent Capacity: Acting as principal or agent regarding the stablecoin.
Transaction Fees: Paying network fees (e.g., “gas” fees) to facilitate transactions.
Support Activities: Undertaking activities directly supporting the above, such as holding non-stablecoin crypto-assets solely for testing distributed ledger functionality (Proposed Rule – Federal Register, 2026; Stable Foundations: OCC Puts Regulatory Teeth into the GENIUS Act, 2026).
Strategic Constraints and Prohibitions
A critical strategic constraint is the implementation of the GENIUS Act’s statutory ban on paying interest or yield to stablecoin holders. The OCC’s proposal strictly prohibits paying any form of yield “solely in connection with the holding, use, or retention” of the stablecoin. To prevent evasion, the rule introduces a “rebuttable presumption” that marketing arrangements with affiliates or third parties (such as white-label partners) violate this ban if they pass yield-like benefits to the end user. This effectively eliminates the business model of passing reserve interest income to retail holders, reinforcing the stablecoin’s function as a payment instrument rather than an investment contract (Gibson Dunn, 2026).
Furthermore, PPSIs are prohibited from rehypothecating reserve assets, with very narrow exceptions for liquidity management via repurchase agreements. This ensures that the assets backing the stablecoin are not encumbered by other bank liabilities, creating a “bankruptcy-remote” structure that protects holders even if the issuing bank faces insolvency elsewhere (Freshfields, 2026).
Prudential Standards: Reserves, Liquidity, and Capital
The OCC’s prudential framework for PPSIs departs from the risk-weighted capital approach of Basel III, adopting instead a full-reserve model focused on immediate liquidity and asset quality.
Reserve Composition and Segregation
Under proposed § 15.11, issuers must maintain reserves that strictly equal or exceed the outstanding par value of all issued stablecoins (a 1:1 backing). These reserves must be strictly segregated from the issuer’s own assets and held in custody at “eligible financial institutions.” Permissible reserve assets are limited to high-quality liquid assets (HQLA), specifically:
- U.S. currency and Federal Reserve Bank balances.
- U.S. Treasury bills, notes, and bonds with a remaining maturity of 93 days or less.
- Reverse repurchase agreements with overnight maturity, fully collateralized by Treasuries.
- Money market funds invested exclusively in the above assets.
The rule strictly prohibits commingling reserve assets with the bank’s general account, requiring them to be “identifiable” and held in a manner that protects them from the issuer’s creditors (Proposed Rule – Federal Register, 2026).
Liquidity Management and Redemption
To mitigate run risk, the OCC proposes specific liquidity floors and redemption timelines. Issuers must meet either mandatory quantitative thresholds or a safe harbor equivalent:
Daily Liquidity: At least 10% of reserves must be held in immediately available funds (e.g., cash, Fed balances).
Weekly Liquidity: At least 30% of reserves must be available within five business days.
Weighted Average Maturity (WAM): The reserve portfolio must maintain a WAM of no more than 20 days, significantly shorter than the 60-day limit for money market funds under SEC Rule 2a-7.
Redemption obligations are stringent: issuers must redeem stablecoins at par within two business days of a request. However, acknowledging the risk of mass redemptions, the rule permits an extension to seven calendar days if redemption demands exceed 10% of outstanding issuance within a 24-hour period (Implementing the GENIUS Act – Regulations.gov, 2026; Pillsbury Law, 2026).
Supervision, Reporting, and Operational Resilience
The proposed rule introduces a high-frequency supervisory regime under § 15.13 and § 15.14, exceeding standard bank reporting cadences to address the velocity of digital asset risks.
Reporting and Examination
The OCC proposes a rigorous reporting framework:
Weekly: Confidential reports detailing issuance and reserve levels.
Monthly: Public disclosure of reserve composition, which must be examined and attested to by a registered public accounting firm. This “continuous audit” model effectively treats monthly reports with the severity of annual financial statements.
Quarterly: Detailed reports on financial condition and capital adequacy.
Annual: Full-scope supervisory examinations, though highly compliant smaller issuers may qualify for an 18-36 month cycle (Proposed Rule – Federal Register, 2026; Implementing the GENIUS Act – Regulations.gov, 2026).
Operational Resilience and Technology Risk
Given the reliance on distributed ledgers, the rule mandates a comprehensive “information technology and security program.”
Custody and Private Keys: While technology-neutral, the rule requires “exclusive control” over reserve assets and private keys. Issuers must validate that smart contracts operate as intended and maintain robust backup and recovery procedures for cryptographic keys.
Third-Party Risk Management: Explicit due diligence and monitoring are required for third-party service providers, including those managing cloud infrastructure or white-label arrangements. This aligns with broader interagency guidance on third-party relationships but specifically targets the risks of “unplanned technology changes” (e.g., protocol upgrades) introduced by vendors.
Business Continuity: PPSIs must have specific plans for continuity and recovery of critical functions in the event of distributed ledger failures or congestion, ensuring that the “on-chain” nature of the asset does not compromise “off-chain” safety and soundness (Proposed Rule – Federal Register, 2026; Pillsbury Law, 2026).
Conclusion
OCC-2025-0372 represents a pivotal shift in the integration of digital assets into the federal banking system. By establishing a “narrow bank” framework that separates payment stablecoin issuance from credit risk, the OCC provides a clear, albeit rigorous, pathway for national banks to enter the market. However, the combination of 1:1 reserve requirements, a 12-month operational expense backstop, and the prohibition on yield creates a heavy cost of capital for issuers. These prudential standards, alongside the burden of monthly CPA attestations, favor large, institutionally focused banks over smaller entrants or retail-focused models relying on reserve interest for profitability. Ultimately, the rule prioritizes the stability of the payment instrument over the profitability of the issuer, aligning stablecoins more closely with the operational resilience standards of financial market utilities than the risk profile of traditional commercial deposits.