Fed's Stablecoin Draft Sets 2-Day Redemption — but Who Decides When Issuers Liquidate?

Barr Backs the Draft, With Conditions

Federal Reserve Governor Michael Barr threw his weight behind the central bank's first GENIUS Act rulemaking on Thursday — and immediately drew its outer limit. Stablecoins, he argued, are only stable when holders can redeem at par promptly and reliably, including during market stress, when pressure can hit even liquid government debt, and during strain on an individual issuer or its related entities. The draft the Board published the same day would impose a 2% operational-risk capital charge on the first $20 billion of a Fed-supervised issuer's stablecoins outstanding, 1.5% on the next $30 billion and 1% above $50 billion. Redemptions would generally settle within two business days, and a shortfall against one-to-one backing would force the issuer to notify the Fed, then either remediate under a plan or liquidate reserves and redeem every token.

Full Reserves, Bank Applications

The reserves themselves would have to be conservative. Board-supervised issuers would back every token in full with permissible assets — short-term US Treasury bills and other high-quality, liquid holdings — with the same draft setting standardized capital requirements, risk-management standards and rules for firms that safekeep the collateral. A companion proposal opens a tailored application route for banks seeking Fed approval to issue payment stablecoins, with procedures for appeals, hearings and final decisions. These blockchain tokens pegged to the dollar — Tether's USDT the largest, with issuance chains such as Stablechain emerging — now move money between exchanges and handle cross-border payments that compete with card networks like Visa. The comment period closes 60 days after the notices run in the Federal Register.

The application mechanics carry a statutory clock. A bank — not its proposed subsidiary — files with its regional Federal Reserve Bank, submitting a business plan, financial information and policy documents. The Fed would have 30 days to tell an applicant whether its filing is substantially complete, and once it is, the GENIUS Act gives the Board 120 days to decide; an application left unanswered past that window is deemed approved. A material change to the business plan or financial condition can reset the clock. The route may soon draw heavy traffic: on September 1, Bank of America, Citi, Goldman Sachs and 18 other institutions committed to building a stablecoin company, per a September industry report, targeting a US dollar token in the first half of 2027.

Racing the January 2027 Clock

The timetable is tight by design. The GENIUS Act, signed by President Donald Trump on July 18, 2025, takes effect on January 18, 2027 — or 120 days after federal regulators finalize their implementing rules, whichever comes first. Agencies missed the statute's July 18, 2026 deadline for completing those rules, leaving proposals at different stages of review, which makes a January start the realistic floor. The rollout is spread across Washington: the OCC has set a November target for its own final rules covering reserves, custody and issuer applications, while Treasury has proposed barring platforms from selling noncompliant stablecoins to US customers. The Fed's two notices join that queue, with no calendar deadline set for their own finalization.

The Liquidation Trigger

Barr's conditions got specific in his Thursday statement. He welcomed the reserve limits and standardized capital charges but asked for public feedback on whether the framework adequately addresses interest-rate and foreign-currency risks, and he insisted universal redemption rights be spelled out explicitly in the final rule. He also flagged a threshold he dislikes: the draft would bar Fed supervisory or enforcement action over an anti-money-laundering deficiency unless it is judged “significant or systemic.” The liquidation mechanics are equally consequential. Eligible reserves — dollars, Fed deposits, bank deposits, Treasury bills of 93 days or less, qualifying repos and even tokenized versions of permitted assets — must sit segregated from an issuer's other holdings, and an issuer still below its capital minimum at the next quarter's end must sell reserves and redeem its tokens. Readers tracking the market in real time can follow live spot and futures prices on Bybit.

The Comment Window That Decides

The authority in this fight sits with the text the Fed has not yet written. Our reading of the proposal notice: it binds Board-supervised payment stablecoin issuers and insured state member banks, it is a proposal — open to revision — not a final rule, and it takes its force from a statute that bites no later than January 18, 2027. Technology that settles in seconds on Ethereum smart contracts and layer-2 networks would run under quarterly capital tests and month-long regulatory clocks. Barr named the hinge: whether universal redemption rights enter the final rule. The 60-day comment window is where that gets decided — and, with it, who decides when a stablecoin can no longer honor its peg.