Implementing the GENIUS Act: A Capital Markets Perspective on the OCC’s Stablecoin Proposal

The Office of the Comptroller of the Currency’s (“OCC”) proposal to implement the Guiding and Establishing National Innovation for U.S. Stablecoins (“GENIUS”) Act will affect how this form of digital cash is used across the capital markets and broader financial system. SIFMA filed a comment letter responding to the proposal on May 1. Below are the key themes from our submission and why getting the details right matters for the U.S. capital markets.

Key Takeaways

• Reserve requirements should permit a broad range of highly liquid assets to qualify: Concentration, diversification, and maturity standards should be calibrated so that the full range of GENIUS Act-eligible reserve assets, including short-dated Treasuries, repo, and government money market funds (“MMFs”), remain practically available to issuers. Reserve flows are now a meaningful new source of demand for these instruments; calibrating these requirements too restrictively would concentrate that demand at the very front of the Treasury curve and limit the role that government MMFs could play in supporting reserve management.
• Clear scope and role definitions are essential: As payment stablecoins become increasingly integrated into capital markets activities, it is essential that all participants in the ecosystem have regulatory and supervisory clarity. The OCC’s final rule should be explicit about which activities and entities are covered, how obligations apply when one firm performs multiple roles, and how stablecoin status is identifiable as tokens circulate across distributed ledger networks.
• Redemption rules should reduce, not amplify, run risk: Frameworks should emphasize up-front liquidity planning and stress testing rather than automatic mechanisms that could encourage preemptive withdrawals and transmit stress into the short-term funding markets.
• Custody and prudential requirements should be proportionate and compatible with established practice: Reserve segregation and custody arrangements should align with the well-established omnibus, sub-custody, and segregation models already used across the securities and banking markets. Capital and liquidity standards applied to bank exposures to payment stablecoins should reflect the actual risk characteristics of the exposure, so that prudential rules do not discourage banks from engaging with payment stablecoins. The proposed operational backstop should also be enhanced to ensure the resiliency of Permitted Payment Stablecoin Issuers (“PPSIs”).
• Regulatory coordination is essential: The OCC should coordinate closely with the FDIC, Federal Reserve, and U.S. Treasury to avoid regulatory fragmentation in GENIUS Act implementation. These agencies should also coordinate with the SEC and CFTC on issues such as collateral eligibility, custody definitions, and the treatment of payment stablecoins for accounting and margin purposes.

Why the OCC’s Stablecoin Proposal Matters for U.S. Capital Markets

Congress enacted the GENIUS Act to establish a federal prudential framework for payment stablecoins, which are digital tokens designed to maintain a stable value against the U.S. dollar and to be redeemable at par. ¹ As the market for payment stablecoins grows, regulatory implementation decisions will shape how these instruments are used in the capital markets and whether they will help support market resiliency or undermine it. The OCC’s proposal, which would create a chartering regime for federally regulated issuers, is an important step in that process. ² The choices the OCC and other regulators make will influence whether stablecoins develop as a trusted payment tool that complements existing market infrastructure, or as instruments that introduce new vulnerabilities into the markets.

Payment stablecoins are often described as “digital cash,” but their risk profile depends on the quality and liquidity of the assets backing them, how those assets are held, and, critically, whether redemption works under stress. The OCC’s own preamble notes that private sector forecasts project payment stablecoin issuance could reach $500 billion this year. ³ At that scale, payment stablecoin issuers become a meaningful new source of demand for short-term Treasuries, the repo market, and government money market funds — creating direct linkages between stablecoin activity and the core funding markets that underpin the broader U.S. capital markets.

A range of financial institutions, including broker-dealers, banks, asset managers, custodians, and market utilities, are likely to participate in the payment stablecoin ecosystem in a variety of roles, including as reserve managers, counterparties, custodians, and service providers. For that reason, the OCC’s rules will not only affect PPSIs themselves; they will also shape the operating environment for the broader set of regulated intermediaries that interact with payment stablecoins across the capital markets. A clear, risk-sensitive framework can support innovation and confidence, while an unclear or poorly calibrated framework could amplify stress at the points where payment stablecoins connect to traditional markets.

The Proposed Reserve Asset Concentration and Diversification Requirements Should be Recalibrated

Reserve requirements are the core of a credible payment stablecoin framework. The GENIUS Act established a list of eligible reserves comprising highly liquid assets – cash, short-dated U.S. Treasuries, overnight repo backed by Treasuries, and government MMFs – paired with liquidity requirements designed to ensure that issuers can meet redemptions under stress. The OCC’s proposal implements the statutory mandate that reserve assets be subject to concentration, diversification, and liquidity standards. Several of those calibrations, however, should be adjusted to permit the full range of GENIUS Act-eligible assets to be practically usable by PPSIs.

The proposed 20-day weighted average maturity (“WAM”) limit is the clearest example. The SEC’s Rule 2a-7 permits government MMFs investing in essentially the same asset classes to maintain a 60-day WAM, despite being subject to comparable redemption demands. The OCC’s proposal would constrain payment stablecoin reserves to one-third of that maturity profile, pushing reserve allocation into the shortest segment of the Treasury curve which is exposed to refinancing risk and most vulnerable to procyclical liquidation under stress. As payment stablecoin issuance scales, that concentration could itself become a source of front-end Treasury market pressure. SIFMA recommends aligning the OCC’s WAM limit with the 60-day standard already applied to economically equivalent funds, which is also well within the GENIUS Act’s 93-day statutory ceiling.

The weekly liquidity test raises a related calibration concern. The proposal would require that 30 percent of reserves be accessible within five business days but defines accessibility through a relatively narrow set of asset categories that exclude Treasury-backed assets, including government MMFs. Treasury securities across the front of the curve can typically be monetized within five business days through the repo market, even under conditions of moderate market stress. SIFMA recommends broadening the weekly liquidity test to encompass any eligible reserve asset that can be converted to cash within five business days, including Treasuries monetized through repurchase agreements.

The treatment of government MMFs presents a third, related issue. Section 4(a)(1)(A) of the GENIUS Act explicitly authorizes government MMFs investing in eligible reserve assets to serve as reserves themselves. As these funds are already subject to comprehensive prudential oversight, with their own diversification, liquidity, and credit quality standards, layering on an additional tier of requirements at the PPSI level would significantly decrease the utility of MMFs as reserves. SIFMA recommends that government MMFs investing only in GENIUS-eligible assets receive treatment comparable to the underlying assets themselves, and that the 20 percent capital haircut under 12 CFR 3.53(a)(1), which is calibrated for general bank holdings of MMF interests rather than for this specific use case, not apply to qualifying MMF interests held as reserves.

The 40 percent single-institution concentration limit raises a different calibration issue. The proposal applies a single quantitative metric to exposure types that present materially different risks. Custodied Treasury securities are the property of the issuer rather than a credit exposure to the custodian. Aggregating custodial relationships into a concentration metric designed for credit exposures could fragment custody in ways that increase operational risk. SIFMA recommends removing custodied assets from the limit and applying a qualitative custodial concentration framework instead.

Clear Scope and Definitions are Essential for Stablecoin Market Participants

In SIFMA’s response to the OCC, we urge the agency to start with clear scope and role definitions. Payment stablecoin arrangements involve issuers, reserve custodians, wallet providers, transfer agents, and other intermediaries, and a single firm may perform more than one function. As stablecoins are increasingly used in capital markets contexts, the regulated intermediaries supporting these uses need a coherent supervisory framework. The final rule should clearly assign responsibilities across these roles and ensure accountability does not fall into the seams between entities. Without that clarity, stress events can lead to delayed responses, conflicting obligations, or gaps in accountability.

Definitions should also be functional and technology neutral. The final rule should accommodate broadly available permissioned or private-ledger arrangements that may support institutional use cases, provided they meet appropriate expectations for transparency, resilience, and security. Furthermore, regulators should ensure there are practical mechanisms – such as registries or standardized identifiers – to enable intermediaries and users to reliably determine whether a token is issued by a compliant issuer.

Redemptions: Avoid Importing Run Dynamics into the Funding Markets

Redeemability at par is the foundation of any payment stablecoin. The OCC’s approach should reinforce expectations for prompt redemption while avoiding mechanisms that import run dynamics into the framework. The most significant concern in this part of the proposal is the automatic seven-calendar-day redemption extension that would be triggered when redemption demands exceed 10 percent of outstanding issuance value in a 24-hour period. A bright-line rule of that kind creates a textbook preemptive-run incentive: holders watching outflows approach the threshold have every reason to redeem before the gate comes down.

The impact on capital markets is potentially significant. If reserves are concentrated in the asset classes that funding markets rely on for liquidity, and if multiple issuers were to respond to a redemption shock by liquidating short-dated Treasury reserves into stressed markets simultaneously, the resulting selling pressure would transmit straight into the funding markets that the broader capital markets depend on. These dynamics could be even more acute in the payment stablecoin context, where holders can see outstanding issuance and redemption activity in real time on chain, making preemptive behavior easier and faster than in any traditional fund ⁴. SIFMA recommends striking the automatic extension and relying instead on ex-ante liquidity planning, stress testing, and supervisory escalation triggers.

Custody and Prudential Requirements Need to be Properly Designed to Support Payment Stablecoin Markets

Confidence in payment stablecoins requires confidence in how reserves are custodied. SIFMA supports strong standards for custody, control, and segregation that make reserve assets bankruptcy-remote and protected for the benefit of payment stablecoin holders. At the same time, the OCC should ensure these requirements are compatible with established custody and account structures used across the securities and banking markets, including common omnibus arrangements, sub-custody chains, and segregation models supported by robust recordkeeping and reconciliation.

The prudential treatment of bank exposures to payment stablecoins will also be critical to the responsible development of payment stablecoin markets. Banks may interact with payment stablecoins in a range of capacities, including as reserve managers for affiliated and unaffiliated issuers, as custodians, as counterparties in collateral arrangements, and as service providers across the lifecycle. Punitive capital or liquidity treatment of well-collateralized stablecoin exposures would have the perverse effect of penalizing the bank participation that brings supervisory discipline, balance sheet capacity, and operational resilience into these markets and should therefore be avoided. The OCC should coordinate with the Federal Reserve and FDIC to ensure that payment stablecoins are subject to a consistent, risk-sensitive, and technology neutral prudential treatment that applies to all institutions that those agencies supervise.

The operational backstop will also be important to the resiliency of PPSIs and the broader ecosystem. SIFMA recommends that it be strengthened. First, the operational backstop should be funded with capital rather than debt, as debt-funded resources can disappear at exactly the moment they are most needed, when credit lines can be pulled, intercompany funding repriced, and refinancing markets closed. Capital, by contrast, is reliably available regardless of market conditions. Second, the operational backstop should look through to material expenses booked at affiliates. Within larger corporate or financial groups, a substantial portion of a PPSI’s operating expenses may be booked at the affiliate level rather than at the issuer itself. If the backstop is calibrated only to expenses recorded directly at the PPSI, the requirement could be circumvented through ordinary intragroup arrangements.

Interagency Coordination is Critical for Market Development

Payment stablecoins are instruments that sit at the intersection of payments, banking, and capital markets, which is why regulatory coordination will be critical to the functioning of this emerging ecosystem. Coordination among the OCC, FDIC, Federal Reserve, and Treasury will also avoid the potential for regulatory fragmentation and arbitrage, ensuring that similar activities and risks are regulated in a similar manner. Equally important is coordination with the capital markets regulators on issues that arise where payment stablecoin activity intersects with the securities and derivatives markets. This includes coordinating on issues such as the eligibility of payment stablecoins to serve as financial collateral, the alignment of custody definitions across the OCC, SEC, and FINRA, and the treatment of payment stablecoins for accounting purposes. A coordinated approach will provide clarity and certainty to market participants, fostering confidence in payment stablecoins and aiding market development.

Conclusion

The OCC’s implementation of the GENIUS Act represents an important opportunity to integrate payment stablecoins into the regulated financial system in a way that supports innovation while reinforcing the resilience of the markets these instruments will increasingly interact with. The final regulatory framework should be calibrated to actual risk, applied consistently across issuer types and supervisors, and designed with explicit recognition of how payment stablecoin activity interacts with the short-term Treasury, repo, and money market fund markets that underpin U.S. capital markets functioning. Getting these design decisions right will determine whether payment stablecoins develop as a trusted payment tool for capital markets activities, or as instruments that introduce new vulnerabilities into the financial system. SIFMA looks forward to continued engagement with the OCC and the other GENIUS Act agencies as they continue to develop this framework over the coming months.

Footnotes