Stablecoins gain clarity under GENIUS Act as legal questions linger for banks and fintechs

The Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (GENIUS Act) marks a watershed moment in the regulation of digital assets. Enacted on July 18, 2025, the GENIUS Act creates a comprehensive federal framework for the issuance and oversight of payment stablecoins, which are on-chain assets pegged to the U.S. dollar and backed by reserves. Senate Bill 1582, 119th Cong. (2025). Among other requirements, the Act mandates payment stablecoin issuers maintain fully backed 1:1 reserves in permitted assets, submit to monthly examinations and reporting requirements, and publish their redemption policy. While the law offers long-sought regulatory clarity for the burgeoning stablecoin industry, it also raises a host of legal and supervisory questions for banks, nonbank issuers and regulators navigating the rapidly evolving intersection of blockchain technology and traditional finance. The Act will become effective by Jan. 18, 2027 -- 18 months after enactment -- or earlier if regulators implement rules sooner. Additionally, digital asset service providers such as exchanges, wallets, and custodians have a three-year transition period. For example, by July 2028 they must cease dealing in any stablecoins not issued under the GENIUS Act's framework.

A federal and state dual oversight framework for stablecoins

At its core, the GENIUS Act establishes a dual-licensing regime for stablecoin issuance. It allows both (i) insured depository institutions (through a subsidiary) and (ii) any nonbank entity, Federal branch or uninsured national bank chartered by the Office of the Comptroller of the Currency (OCC) to issue stablecoins, provided they comply with the Act's requirements. Federal issuers are supervised by the OCC and several other federal banking agencies, while certain state issuers may operate under certified state-level regimes, provided they remain under $10 billion in issuance.

Before July 18, 2026, state agencies wishing to oversee stablecoin activity in their state must submit an initial certification to the Stablecoin Certification Review Committee, which is composed of the Secretary of the Treasury, the Chair of the Federal Reserve Board and the Chair of the Federal Deposit Insurance Corporation, stating that the state's regulatory regime is "substantially similar" to the federal framework under the Act. Notably, the Act includes a federal preemption provision stipulating that a state may only apply its laws to an out-of-state, qualified stablecoin issuer to the same extent that those laws would apply to a federally chartered stablecoin issuer operating in the state. In effect, this clause prevents host states from imposing stricter or more burdensome requirements on state-chartered issuers than they do on their federally chartered counterparts. Certain issuers are categorically ineligible for the state licensing path, regardless of size; for example, insured banks, OCC-chartered uninsured national banks and federal branches must operate under federal stablecoin authority and cannot rely on state authority.

Prospective stablecoin issuers now face a strategic choice. Large platforms may gravitate toward the OCC charter, as it offers nationwide preemption, clear standards under direct federal supervision, and clearer pathways to partnerships with established banks that enjoy incumbency advantages. Smaller issuers and fintechs may prefer a certified state regime to avoid OCC application cost and consolidated supervision. Furthermore, because crossing the $10 billion threshold forces migration to an OCC charter or bank-subsidiary model, firms may decide to spin off multiple sub-$10 billion entities. Expect federal scrutiny of such tactics. Finally, despite the Act's substantial similarity requirement for state regimes, states' capital requirements, examination cadence, disclosure requirements and enforcement posture may diverge slightly in practice. Accordingly, wallet providers and other off-chain processors may prefer dealing only with OCC issuers to avoid a complex patchwork of state-level requirements.

Federal reserve master accounts: Access unchanged under GENIUS

The GENIUS Act leaves Federal Reserve master account access unchanged: it expressly neither expands nor contracts legal eligibility for Federal Reserve Bank services or deposits. Thus, access continues to be determined under the Fed's existing Guidelines for Evaluating Account and Services Requests, not the Act. Master account decisions therefore remain case-by-case under the Fed's risk-based review, with no new presumptions of approval added by GENIUS. For nonbank OCC-supervised issuers, that means no new doorway to a master account and continued reliance on bank partners to access Fed rails. As such, incumbent insured depositories retain this structural edge over fintechs.

Bank participation in stablecoin issuance

For traditional banks, the GENIUS Act presents both opportunity and additional compliance considerations. The Act formally authorizes banks to issue payment stablecoins, although insured depositories must do so through a legally separate subsidiary, as required by the Act. The Act's passage follows moves by prudential regulators earlier this year to rescind previous guidance imposing compliance hurdles for banks seeking to engage with digital assets. Namely, in Financial Institutions Letter 7-2025 and Interpretive Letter 1183, the FDIC eliminated its prior approval and notification requirement, and the OCC withdrew its supervisory non-objection process, clarifying that banks may engage in permissible crypto-asset activities provided they meet applicable safety-and-soundness requirements. This means federally insured depository institutions and OCC-chartered banks are free to issue stablecoins in compliance with the Act's requirements.

Issuers prohibited from offering yield-bearing stablecoins

The GENIUS Act bars stablecoin issuers from paying depositors "any form of interest or yield ...solely in connection with the holding, use, or retention" of the depositor's stablecoins. This forecloses (i) pass-through yield models that generate yield from stablecoin reserve assets (e.g., sharing T-bill income) and traditional interest-bearing account models. The phrase "solely in connection with" is notable; this presumptively prohibits yield triggered by factors such as balance size or time held. While benefit accrual tied to a separate service arguably falls outside the ban, regulators are likely to scrutinize work-arounds and clever packaging. In practice, competition between stablecoin issuers will emphasize lower fees, faster settlement and cleaner, more intuitive UX, as opposed to attractive APRs. Expect stablecoin issuers to minimize GENIUS Act risk by walling off any third-party stablecoin yield products contractually and via branding. This could take the form of prohibiting partners from promoting yield products or stripping "earn" features from UX and APIs.

What comes next?

The Act directs federal payment stablecoin regulators to issue implementing regulations by July 18, 2026. These rules will determine what the GENIUS Act requires in practice with respect to: (i) capital and liquidity requirements; (ii) standards for licensing, examinations, disclosures and vendor management; (iii) principles for determining whether state regimes are "substantially similar;" and (iv) anti-money laundering compliance and sanctions screening obligations, among additional rules and regulations the Act mandates for promulgation. Meanwhile, state stablecoin regulators must prepare to submit their initial certifications and create their oversight regimes by the same date.

Final thoughts

The GENIUS Act represents an actionable plan to bring blockchain-based payment stablecoins within the regulatory perimeter. It gives legal shape to a financial instrument that has until now existed in a gray area. However, many consequential details are left to implementation by regulators. As federal and state agencies move toward the July 18, 2026 rulemaking and certification deadlines, banks and nonbank issuers should pressure-test whether the OCC or certified state path best fits their objectives and scale, solidify compliance controls, purge yield-adjacent features, and ready vendor-management playbooks for wallets and processors. In short, the Act offers clarity without finality; stakeholders that engage with rulemakings early and align programs now will be best positioned when the details land. Congress set the table for stablecoin regulation; soon the regulators will decide the menu.