By Kaye Lynch-Sparks
ABA Viewpoint
Kaye Lynch-Sparks is senior director and counsel, innovation policy in ABA’s Office of Innovation.
Congress gave federal regulators until July 18, 2026, to finalize the Genius Act’s implementing rules. That deadline came and went without a coordinated final package, but don’t mistake the delay in establishing final rules of the road for stablecoin for a reprieve.
The Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, National Credit Union Administration, U.S. Department of Treasury, and the Financial Crimes Enforcement Network/Office of Foreign Assets Control all have published detailed proposals, with a rule from the Federal Reserve Board still to come. Many comment periods are closing through August, and a final rule set is coming. For banks, the shape of that framework is becoming clear enough to plan around, even if the ink on the page isn’t dry, and the Clarity Act remains in play.
Here’s the short version of what’s expected in the final rules, and what banks should consider.
The framework, in brief
The Genius Act outlines the regulatory guardrails for issuing stablecoins and who can be a “permitted payment stablecoin issuer,” with three pathways: as a subsidiary of an insured depository institution, as a national trust company regulated by the OCC, or as a standalone nonbank entity licensed federally by the OCC or under a state regime deemed substantially similar. Of the agency rules, the OCC’s implementing rule is the backbone. It was first out of the gate. It’s the most comprehensive, and the FDIC’s and NCUA’s proposals largely track its structure for the institutions they supervise. Regardless of the licensing path, all PPSIs are subject to prudential requirements, with a separate Bank Secrecy Act/anti-money laundering/sanctions overlay being built in parallel by FinCEN, OFAC and the prudential regulators.
What banks should care about
Skip the noise and focus on four open questions that will shape the competitive landscape between banks and nonbank issuers:
- The interest/yield prohibition. The Genius Act’s intent was clear: Issuers can’t pay interest or yield on stablecoins, full stop. As ABA has stressed throughout the process, the rulemaking’s anti-evasion language, particularly as it relates to indirect yield such as distribution-fee arrangements, will determine how much daylight exists for issuer-affiliated rewards programs. The result will shape whether stablecoins stay as pure payments tools or as interest-bearing instruments offered by institutions outside the banking system that create deposit flight from banks and ultimately a reduction in lending and economic growth. Concern that these rules will not go far enough is exactly why ABA is calling on Congress to tighten the language around stablecoin rewards in the Clarity Act.
- Whether nonbanks get a real bank-equivalent bar. Redemption obligations, reserve composition rules, and capital and liquidity requirements apply to any PPSI, whether a subsidiary of a bank or a non-bank entity, but the rulemakings will determine whether nonbank issuers will be held to standards substantively equivalent to a PPSI that is a bank subsidiary or given lighter treatment as a “new” product. If it’s the latter, bank stablecoin issuers are competing against issuers operating under a materially lower cost structure.
- Who’s actually on the hook across the ecosystem. Issuers and reserve custodians aren’t the only players. Distributors, wallet providers and payment intermediaries all touch the product. The Genius Act clearly regulates issuers and creates obligations for digital asset service providers as well with regulations due by 2028, but important questions remain about how responsibility and supervisory expectations will be allocated across the broader stablecoin distribution chain.
- Consumer protection hasn’t caught up to the product. De-peg loss, redemption delays, fraud and unauthorized transfers are all real risks for a stablecoin holder, but existing consumer protection and disclosure frameworks haven’t been mapped onto this product yet. Holders need clear protections against these risks before adoption scales further. There’s an open question about whether regulations will address this and if not, how this gap will be filled.
Those four fault lines describe the environment to watch. The question every bank actually has to answer is simpler: Should you try to become a player in that environment as an issuer, or build around it?
Should your bank become an issuer?
Whether to establish a PPSI depends greatly on the business plan of the bank and how it would integrate payment stablecoins into its roadmap for customers. For most banks, becoming a PPSI is probably not the right call. A bank’s typical business model runs on taking deposits and making loans, but PPSI reserves generally can’t be rehypothecated. They must sit in high-quality liquid assets (e.g., cash or short-term treasuries), earning little and doing nothing for the loan book. Worse, the deposits most likely to migrate into a bank’s own stablecoin are the cheap, sticky ones already on the balance sheet. Meaning a bank isn’t attracting new low-cost funding by issuing; it’s converting funding it already had into a form it can no longer relend. Add a dedicated compliance build-out on par with a new business line, and this isn’t a spread business, it’s a cost center with regulatory tail risk attached and one where margin depends on scale and interest rates. A couple of dominant, well-capitalized nonbank issuers are already built for that math; most banks, especially community and midsize institutions, are unlikely to be well positioned to individually compete on it.
What should banks be doing?
Skipping issuance doesn’t mean skipping the space. Before picking a strategy, a bank needs a clear view of where stablecoins actually fit in its own payments stack, since a retail-heavy community bank and a bank with a large corporate treasury book won’t prioritize the same innovation. Below are four moves a bank can consider to engage in stablecoins, depending on the bank and the strategy:
- Tokenized deposits. If the appeal of payment stablecoins is programmability, faster settlement, and interaction with on-chain assets, tokenized deposits deliver that without the need for a new issuer entity, a new capital stack, or new redemption obligations, because they remain deposits, not stablecoins. They function as regular bank deposits, and unlike PPSI reserves, which cannot be lent against, they can fund fractional reserve lending, preserving banks’ core credit intermediation role rather than sidelining it.
- A wallet for customers who use payment stablecoins. Plenty of customers will want to hold and transact in payment stablecoins regardless of what the bank does. Rather than cede that relationship entirely, banks can offer a customer-facing wallet, letting customers buy, hold and move stablecoins through an interface the bank controls. This keeps the bank in the customer relationship and the fee income, while the issuer, not the bank, carries the reserve, redemption, and capital obligations under the PPSI framework.
- Reserve custody for issuers. Stablecoin issuers need somewhere to hold the reserve assets backing their coins, and banks are a natural fit for holding reserve deposits for a PPSI, or serving as qualified custodian for those reserve assets, putting the bank at the center of the framework.
- Fiat on/off-ramps. Processing the deposit-to-stablecoin and stablecoin-to-deposit conversions for customers is a fee-generating, deposit-gathering role that leans on capabilities banks already have, including “know your customer” processes, payments infrastructure and settlement, rather than requiring a new balance-sheet commitment.
The bottom line
The Genius Act framework is being built to pull everyone touching stablecoin issuance, reserves or custody into a bank-grade compliance perimeter. How the open regulatory questions above get resolved will shape who has the advantage inside that perimeter, but it won’t change the basic shape of the opportunity. The real work for most banks isn’t deciding whether or not to become an issuer. It’s building the strategy that comes after that answer and showing up as the critical and trusted infrastructure bank customers continue to rely on.
Kaye Lynch-Sparks is senior director and counsel, innovation policy in ABA’s Office of Innovation.
