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Proposed Rule2026-06974

GENIUS Act Requirements and Standards for FDIC-Supervised Permitted Payment Stablecoin Issuers and Insured Depository Institutions

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Published

April 10, 2026

Issuing agencies

Federal Deposit Insurance Corporation

Abstract

The Federal Deposit Insurance Corporation (FDIC) is soliciting comment on a proposal that would implement certain requirements pursuant to the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) applicable to FDIC-supervised permitted payment stablecoin issuers and insured depository institutions, clarify deposit insurance coverage for deposits held as reserve assets for payment stablecoins, and clarify the treatment of tokenized deposits.

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<title>Federal Register, Volume 91 Issue 69 (Friday, April 10, 2026)</title>
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[Federal Register Volume 91, Number 69 (Friday, April 10, 2026)]
[Proposed Rules]
[Pages 18534-18579]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-06974]

[[Page 18533]]

Vol. 91

Friday,

No. 69

April 10, 2026

Part II

Federal Deposit Insurance Corporation

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12 CFR Parts 324, 330, and 350

GENIUS Act Requirements and Standards for FDIC-Supervised Permitted
Payment Stablecoin Issuers and Insured Depository Institutions;
Proposed Rule

Federal Register / Vol. 91, No. 69 / Friday, April 10, 2026 /
Proposed Rules

[[Page 18534]]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 324, 330, and 350

RIN 3064-AG19

GENIUS Act Requirements and Standards for FDIC-Supervised
Permitted Payment Stablecoin Issuers and Insured Depository
Institutions

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is soliciting
comment on a proposal that would implement certain requirements
pursuant to the Guiding and Establishing National Innovation for U.S.
Stablecoins Act (GENIUS Act) applicable to FDIC-supervised permitted
payment stablecoin issuers and insured depository institutions, clarify
deposit insurance coverage for deposits held as reserve assets for
payment stablecoins, and clarify the treatment of tokenized deposits.

DATES: Comments must be received by the FDIC no later than June 9,
2026.

ADDRESSES: You may submit comments, identified by RIN 3064-AG19, by any
of the following methods:
<bullet> FDIC Website: <a href="https://www.fdic.gov/federal-register-publications">https://www.fdic.gov/federal-register-publications</a>. Follow instructions for submitting comments on the agency
website.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#0e4d6163636b607a7d4e686a676d20696178">[email&#160;protected]</a>. Include RIN 3064-AG19 in the
subject line of the message.
<bullet> Mail: Jennifer M. Jones, Deputy Executive Secretary,
Attention: Comments--RIN 3064-AG19, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
<bullet> Hand Delivery to FDIC: Comments may be hand-delivered to
the guard station at the rear of the 550 17th Street NW building
(located on F Street) on business days between 7 a.m. and 5 p.m.
<bullet> Public Inspection: Comments received, including any
personal information provided, may be posted without change to <a href="https://www.fdic.gov/federal-register-publications">https://www.fdic.gov/federal-register-publications</a>. Commenters should submit
only information that the commenter wishes to make available publicly.
The FDIC may review, redact, or refrain from posting all or any portion
of any comment that it may deem to be inappropriate for publication,
such as irrelevant or obscene material. The FDIC may post only a single
representative example of identical or substantially identical
comments, and in such cases will generally identify the number of
identical or substantially identical comments represented by the posted
example. All comments that have been redacted, as well as those that
have not been posted, that contain comments on the merits of the
proposed rule will be retained in the public comment file and will be
considered as required under all applicable laws. All comments may be
accessible under the Freedom of Information Act.
This proposal, all comments received, and a summary of not more
than 100 words of the proposed rule pursuant to the Providing
Accountability Through Transparency Act of 2023 are available at
<a href="https://www.fdic.gov/federal-register-publications">https://www.fdic.gov/federal-register-publications</a>.

FOR FURTHER INFORMATION CONTACT: Alfred L. Seivold, Acting Senior
Deputy Director, (415) 808-8248, <a href="/cdn-cgi/l/email-protection#badbc9dfd3ccd5d6defadcded3d994ddd5cc">[email&#160;protected]</a>, Charles Kirkner,
Senior CFI Specialist, (917) 320-2739, <a href="/cdn-cgi/l/email-protection#0360686a71686d66714365676a602d646c75">[email&#160;protected]</a>, Division of
Complex Institution Supervision and Resolution; Sumaya Muraywid, Chief,
Emerging Technology Section, (202) 898-3904, <a href="/cdn-cgi/l/email-protection#483b253d3a29313f212c082e2c212b662f273e">[email&#160;protected]</a>, Mark
Mickelson, Senior Examination Specialist, (763) 229-6532,
<a href="/cdn-cgi/l/email-protection#1e737f73777d757b726d71705e787a777d30797168">[email&#160;protected]</a>, Division of Risk Management Supervision; David
Friedman, Special Advisor to the Director, (703) 508-3934,
<a href="/cdn-cgi/l/email-protection#137775617a76777e727d5375777a703d747c65">[email&#160;protected]</a>, Division of Depositor and Consumer Protection;
Michael Overmyer, Senior Special Counsel, (917) 320-2795,
<a href="/cdn-cgi/l/email-protection#86ebe9f0e3f4ebffe3f4c6e0e2efe5a8e1e9f0">[email&#160;protected]</a>, Chantal Hernandez, Counsel, (202) 898-7388,
<a href="/cdn-cgi/l/email-protection#1d7e7575786f737c737978675d7b79747e337a726b">[email&#160;protected]</a>, Eugene Frenkel, Fin-Tech Counsel, (202) 898-3578,
<a href="/cdn-cgi/l/email-protection#d6afb0a4b3b8bdb3ba96b0b2bfb5f8b1b9a0">[email&#160;protected]</a>, James Watts, Counsel, (202) 898-6678,
<a href="/cdn-cgi/l/email-protection#38524f594c4c4b785e5c515b165f574e">[email&#160;protected]</a>, Legal Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

The FDIC is issuing this notice of proposed rulemaking (proposed
rule) to implement certain requirements under the GENIUS Act (or the
Act).\1\ The proposed rule would implement requirements that would
apply to FDIC-supervised permitted payment stablecoins issuers (PPSIs),
including requirements related to reserve assets, capital, liquidity,
and risk management requirements. The proposed rule would also
implement requirements that would apply to FDIC-supervised PPSIs and
insured depository institutions (IDIs) that provide payment stablecoin-
related custodial and safekeeping services (collectively, FDIC-
supervised custodians). The proposed rule aims to establish a tailored,
principles-based regulatory regime for FDIC-supervised PPSIs and FDIC-
supervised custodians, consistent with the GENIUS Act, to support the
responsible growth and use of digital assets and related technologies
in the banking sector.\2\ In addition, the proposed rule also aims to
provide clarity to all IDIs with respect to deposit insurance coverage
under the Federal Deposit Insurance Act (FDI Act) for deposits held at
IDIs that serve as reserve assets of a PPSI's payment stablecoin, as
well as clarify the treatment of tokenized deposits.\3\
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\1\ Public Law 119-27, 139 Stat. 419 (codified at 12 U.S.C.
5901-5916).
\2\ See Executive Order 14178, Strengthening American Leadership
in Digital Financial Technology, 90 FR 8647 (Jan. 31, 2025).
\3\ The term ``tokenized deposit'' generally refers to a
tokenized form of an IDI's deposit liability recorded in an on-chain
or off-chain account enabled with distributed ledger technology.
``Deposit tokens'' are similar in application to tokenized deposits.
Generally, a deposit token is more digitally native without a credit
in a corresponding account. The terms ``tokenized deposit'' and
``deposit token'' are sometimes used interchangeably when discussing
deposit tokenization. For purposes of this proposal, ``tokenized
deposit'' is intended as a general term to also include ``deposit
token.''
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II. Background and Authority

The GENIUS Act requires the FDIC, along with the other primary
Federal payment stablecoin regulators \4\ as well as the Department of
Treasury, to implement regulations to carry out the Act's requirements
in establishing a Federal payment stablecoin regulatory framework for
supervised entities.\5\ The FDIC is the primary Federal payment
stablecoin regulator of subsidiaries of insured State nonmember banks
and State savings associations (collectively, ``FDIC-supervised IDIs'')
approved to issue payment stablecoins. In December 2025, the FDIC
issued a notice of proposed rulemaking under section 5 of the GENIUS
Act that would establish application procedures for FDIC-supervised
IDIs to request approval to issue payment stablecoins through a
subsidiary.\6\
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\4\ The primary Federal payment stablecoin regulators are the
FDIC, the Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (FRB), and the National
Credit Union Administration (NCUA). See 12 U.S.C. 5901(25).
\5\ See 12 U.S.C. 5913. In developing this proposed rule, the
FDIC, as required by section 13 of the GENIUS Act, 12 U.S.C. 5913,
coordinated with fellow regulators, as appropriate. The GENIUS Act
will become effective on January 18, 2027, or 120 days after the
date on which the primary Federal payment stablecoin regulators
issue any final regulations implementing the Act, if earlier. See 12
U.S.C. 5901 note.
\6\ 90 FR 59409 (Dec. 19, 2025).
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This proposed rule would implement other GENIUS Act requirements,
specifically requirements for FDIC-supervised PPSIs and FDIC-supervised

[[Page 18535]]

custodians. Section 4 of the GENIUS Act establishes the general
framework applicable to PPSIs, including, among other things,
requirements regarding reserve assets, activities, and disclosures.\7\
Section 4 of the Act also directs the FDIC, and other primary Federal
payment regulators, to develop capital, liquidity, and risk management
requirements and standards for supervised PPSIs.\8\ Section 6 of the
Act contains requirements regarding the FDIC's supervisory and
enforcement authority over regulated PPSIs.\9\ Moreover, section 10 of
the GENIUS Act establishes requirements for FDIC-supervised
custodians.\10\ This proposed rule, if finalized and in conjunction
with finalizing the proposed rule covering the application procedures,
would establish regulatory requirements for FDIC-supervised PPSIs as
mandated by the GENIUS Act, as well as provide further clarity for
FDIC-supervised custodians.
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\7\ 12 U.S.C. 5903.
\8\ 12 U.S.C. 5903(a)(4)(A).
\9\ 12 U.S.C. 5905.
\10\ 12 U.S.C. 5909.
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With respect to proposed amendments to clarify deposit insurance
coverage of deposits that serve as reserve assets and the treatment of
tokenized deposits, the FDIC is authorized by the FDI Act to prescribe
regulations as it may deem necessary to carry out the provisions of the
FDI Act.\11\ The FDIC has previously used this authority to issue rules
providing specificity on insurance coverage.
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\11\ 12 U.S.C. 1819(a)(Tenth); see also 12 U.S.C. 1820(g)
(authorizing the FDIC to prescribe regulations to carry out the FDI
Act); 12 U.S.C. 1821(d)(4)(B)(iv) (authorizing the FDIC to
promulgate regulations as necessary to assure that the requirements
of section 11 of the FDI Act, which governs the determination and
payment of deposit insurance, can be implemented).
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III. Description of the Proposed Rule

To implement the statutory requirements required by the GENIUS Act,
the proposed rule would amend part 350 of the FDIC Rules and
Regulations. Subpart A would apply to FDIC-supervised PPSIs. Subpart B
would apply to FDIC-supervised custodians.
On March 2, 2026, the OCC published in the Federal Register a
notice of proposed rulemaking to issue implementing GENIUS Act
regulations with respect to entities subject to the OCC's
jurisdiction.\12\ Although the OCC's proposed rule is more expansive
than this proposed rule because the OCC is the primary Federal payment
stablecoin regulator for subsidiaries of national banks and Federal
qualified payment stablecoin issuers--including nonbank entities--
approved to issue payment stablecoins, the FDIC has endeavored, in many
areas, to align this proposed rule with the OCC's proposed rule, to the
extent relevant. In addition to seeking comment on each of the
particular provisions described below, the FDIC seeks comment on the
extent to which the primary Federal payment stablecoin regulators
should further align in their final rules to promote consistency of
regulations applicable to all PPSIs subject to the GENIUS Act.
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\12\ 91 FR 10202 (March 2, 2026).
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The proposed rule would also amend the deposit insurance coverage
rules in part 330 that apply to all FDIC-insured depository
institutions by clarifying that deposits held as reserves backing a
payment stablecoin would be insured to the PPSI under the FDIC's
coverage rules for corporate deposits, but would not be insured to
payment stablecoin holders on a pass-through basis. Lastly, the
proposed rule would clarify the treatment of tokenized deposits under
the FDI Act.

A. Subpart A--Requirements and Standards for Permitted Payment
Stablecoin Issuers

1. Purpose and Scope (Proposed Sec. 350.0)
Proposed Sec. 350.0 sets forth the purpose and scope of the
regulations in subpart A. Paragraph (a) describes the purpose to
implement the GENIUS Act, 12 U.S.C. 5901 et seq., with respect to
entities for which the FDIC is authorized to issue regulations under
the Act. Paragraph (b) provides that proposed part 350 subpart A would
apply to all PPSIs for which the FDIC is the primary Federal payment
stablecoin regulator.
2. Definitions (Proposed Sec. 350.1)
Proposed Sec. 350.1 contains the definitions of terms used
throughout subpart A, which generally follow the definitions provided
under the GENIUS Act. For additional clarity, proposed Sec. 350.1(a)
would provide that definitions not otherwise defined in subpart A would
have the same meaning given to them as in section 2 of the GENIUS Act
(12 U.S.C. 5901).
Affiliate. With respect to individuals and entities that may be
involved or associated with a PPSI, the FDIC would define ``affiliate''
to mean a person that controls, is controlled by, or is under common
control with another person. This definition would be consistent with
the definition used in section 3(w)(6) of the FDI Act (12 U.S.C.
1813(w)(6)),\13\ with a modification to replace ``company'' with
``person,'' as that term is defined under the GENIUS Act.
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\13\ This provision cites to the definition of ``affiliate''
under the Bank Holding Company Act, 12 U.S.C. 1841(k).
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Bank Secrecy Act. Consistent with the definition provided in
section 2(2) of the GENIUS Act (12 U.S.C. 5901(2)), the FDIC would
define ``Bank Secrecy Act'' to mean (i) section 21 of the Federal
Deposit Insurance Act (12 U.S.C. 1829b); (ii) Chapter 2 of title I of
Public Law 91-508 (12 U.S.C. 1951 et seq.); and (iii) Subchapter II of
chapter 53 of title 31, United States Code and notes thereto (31 U.S.C.
5311 et seq.). The FDIC proposes to add ``and notes thereto'' as a
clarification.
Customer. The FDIC would define ``customer'' to mean a person that
purchases (through any consideration) the products or services of a
PPSI directly from the PPSI. The FDIC believes this definition would be
appropriate to distinguish from situations where a person has no direct
relationship with a PPSI, such as a payment stablecoin holder who
receives a payment stablecoin in exchange for goods or services sold,
or who purchases a payment stablecoin on the secondary market, and does
not establish a relationship with the PPSI. The proposed ``customer''
definition under part 350, subpart A only applies to part 350, subpart
A.\14\
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\14\ The proposed ``customer'' definition under part 350,
subpart A is not intended to affect any GENIUS Act requirements
promulgated to implement the GENIUS Act's direction to treat PPSIs
as financial institutions for purposes of the Bank Secrecy Act and
to apply Federal law applicable to a financial institution located
in the United States relating to the prevention of money laundering,
including customer identification program or customer due diligence
requirements applicable to PPSIs. See 12 U.S.C. 5093(a)(5)(A).
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Demand deposit. The FDIC would define ``demand deposit'' to have
the meaning given that term at 12 CFR 204.2(b). The term ``demand
deposit'' includes those deposits in tokenized form.
Deposit. The FDIC would define ``deposit'' to have the meaning as
given that term in section 3(l) of the FDI Act (12 U.S.C. 1813(l)).
Consistent with section 4(a)(1)(A)(viii) of the GENIUS Act (12 U.S.C.
5903(a)(1)(A)(viii)), the proposed rule would clarify that the term
includes deposits in tokenized form.
Digital asset. The FDIC would define ``digital asset'' to mirror
the definition provided under section 2(6) of the GENIUS Act (12 U.S.C.
5901(6)), and the term would mean any digital representation of value
that is recorded

[[Page 18536]]

on a cryptographically secured distributed ledger.
Distributed ledger. The FDIC would define ``distributed ledger'' to
mirror the definition provided under section 2(8) of the GENIUS Act (12
U.S.C. 5901(8)), and the term would mean technology in which data is
shared across a network that creates a public digital ledger of
verified transactions or information among network participants and
cryptography is used to link the data to maintain the integrity of the
public ledger and execute other functions.
Distributed ledger protocol. The FDIC would define ``distributed
ledger protocol'' to mirror section 2(9) of the GENIUS Act (12 U.S.C.
5901(9)), and the term would mean publicly available and accessible
executable software deployed to a distributed ledger, including smart
contracts or networks of smart contracts.
Eligible financial institution. The FDIC would define ``eligible
financial institution'' to mean either: (i) a Federal Reserve Bank; or
(ii) a person that is eligible to hold reserve assets in custody under
section 10(a) of the GENIUS Act (12 U.S.C. 5909(a)) and that (A)
complies with the applicable requirements in section 10(b), (c), and
(d) of the GENIUS Act, including with applicable implementing
regulations issued by the relevant primary Federal payment stablecoin
regulator, primary financial regulatory agency, State bank supervisor,
or State credit union supervisor; and (B) if applicable, enters into a
custody agreement with a PPSI documenting the person's compliance with
applicable requirements in section 10(b), (c), and (d) of the GENIUS
Act, and has implemented policies and procedures as to ensure
compliance. The proposed term would be used in connection with
requirements for maintaining required reserves. A PPSI that engages a
financial institution for custody should ensure that the financial
institution is contractually obligated to comply with the GENIUS Act
section 10 and requirements under proposed part 350 subpart B or
applicable implementing regulations by the relevant primary Federal
payment stablecoin regulator, primary financial regulatory agency,
State bank supervisor, or State credit union supervisor to ensure that
reserves are adequately protected. This requirement is expected to
encourage PPSIs to engage in appropriate due diligence of any financial
institutions that offer to maintain reserve assets for PPSIs.
Fair value. The FDIC would define ``fair value'' to mean fair value
as determined under GAAP.
GAAP. The FDIC would define ``GAAP'' to mean generally accepted
accounting principles as used in the United States.
Insured credit union. The FDIC would define ``insured credit
union'' to mirror section 2(14) of the GENIUS Act (12 U.S.C. 5901(14)),
and the term would have the meaning given that term in section 101 of
the Federal Credit Union Act. (12 U.S.C. 1752).
Insured depository institution. The FDIC would define ``an
``insured depository institution'' to have the same meaning as that
term is given in section 3(c)(2) of the FDI Act (12 U.S.C. 1813(c)(2)).
The FDIC believes this divergence from the GENIUS Act, which includes
``insured credit union'' within the term in section 2 of the GENIUS Act
(12 U.S.C. 5901(15)), would be helpful to FDIC-supervised PPSIs and
IDIs as it would be consistent with how the term is defined under other
provisions within the FDIC's Rules and Regulations.
Monetary value. The FDIC would define ``monetary value'' to mirror
section 2(17) of the GENIUS Act (12 U.S.C. 5901(17)), and the term
would mean a national currency or deposit (as defined in section 3(l)
of the FDI Act (12 U.S.C. 1813(l)) denominated in a national currency.
National currency. The FDIC would define ``national currency'' to
mirror section 2(19) of the GENIUS Act (12 U.S.C. 5901(19)), and the
term would mean (i) a Federal Reserve note (as the term is used in the
first undesignated paragraph of section 16 of the Federal Reserve Act
(12 U.S.C. 411)); (ii) money standing to the credit of an account with
a Federal Reserve Bank; (iii) money issued by a foreign central bank;
or (iv) money issued by an intergovernmental organization pursuant to
an agreement by two or more governments.
Outstanding issuance value. The FDIC would define ``outstanding
issuance value'' to mean the total consolidated par value of all of a
PPSI's payment stablecoins issued. The definition would include the
combined total par value of different brands of payment stablecoins
issued by the PPSI. This definition would be relevant for requirements
related to reserve assets, redemptions, reporting, and audits for
larger PPSIs.
Payment stablecoin. The FDIC would define ``payment stablecoin'' to
mirror section 2(22) of the GENIUS Act (12 U.S.C. 5901(22)), and the
term would mean a (i) digital asset (A) that is, or is designed to be,
used as a means of payment or settlement; and (B) the issuer of which
(I) is obligated to convert, redeem, or repurchase for a fixed amount
of monetary value, not including a digital asset denominated in a fixed
amount of monetary value; and (II) represents that such issuer will
maintain, or creates the reasonable expectation that it will maintain,
a stable value relative to the value of a fixed amount of monetary
value. The proposed definition would also (ii) track the exceptions
included in the statutory definition to explicitly exclude from the
definition a digital asset that is a (A) national currency; (B) a
deposit (as defined in section 3 of the FDI Act (12 U.S.C. 1813),
including a tokenized deposit recorded using distributed ledger
technology; or (C) a security, as defined in section 2 of the
Securities Act of 1933 (15 U.S.C. 77b), section 3 of the Securities
Exchange Act of 1934 (15 U.S.C. 78c), or section 2 of the Investment
Company Act of 1940 (15 U.S.C. 80a-2). The FDIC would include the
addition of ``tokenized'' to ``deposit recorded using distributed
ledger technology'' to clarify deposits in tokenized form would not be
a payment stablecoin.\15\
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\15\ See infra Section III.D.
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Permitted payment stablecoin issuer. The FDIC would define
``permitted payment stablecoin issuer'' to have the meaning given that
term in section 2(23) of the GENIUS Act (12 U.S.C. 5901(23)).
Person. The FDIC would define ``person'' to mirror section 2(24) of
the GENIUS Act (12 U.S.C. 5901(24)), and the term would mean an
individual, partnership, company, corporation, association, trust,
estate, cooperative organization, or other business entity,
incorporated or unincorporated.
Primary financial regulatory agency. The FDIC would define
``primary financial regulatory agency'' to have the meaning given that
term in 12 U.S.C. 5301(12)(B) or (C), as applicable. The FDIC believes
this term is helpful to define in connection with the eligible
financial institution definition.
Private key. The FDIC would define ``private key'' to mean the
unique alphanumeric sequence that allows for a transfer of a particular
unit of a digital asset using a distributed ledger. The FDIC believes
defining this term is important because cryptographic control of
private keys is the cornerstone of digital trust, acting as the
ultimate authorization for transfers of digital assets.
Registered public accounting firm. The FDIC would define
``registered public accounting firm'' to mirror section 2(26) of the
GENIUS Act (12 U.S.C. 5901(26)), and the term would have the meaning
set forth in section 2 of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7201(12)).
Reserve asset. The FDIC would define ``reserve asset'' to mean an
asset

[[Page 18537]]

maintained by a PPSI of a type enumerated in Sec. 350.4(e).
Significant redemption request. The FDIC would define ``significant
redemption request'' to mean a circumstance in which aggregate
redemption requests exceed 10 percent of a PPSI's outstanding issuance
value within a single 24-hour period. As noted below, the FDIC seeks
comment on whether 10 percent is the right threshold for redemption
requests and whether 24 hours is the right time period.
Subsidiary. The FDIC would define ``subsidiary'' to have the
meaning given that term in section 3(w)(4) of the FDI Act (12 U.S.C.
1813(w)(4)).
United States Coins and Currency. The FDIC would define ``United
States coins and currency'' to mean U.S. coins and currency as
described in 31 U.S.C. 5103. This definition is relevant for proposed
reserve asset composition, reserve asset value calculation, and
operational backstop requirements.
Questions for Definitions Section (Proposed Sec. 350.1)
The FDIC requests comment on the definitions provided under
proposed Sec. 350.1, including the following:
Question 1: Are the definitions in the proposed rule sufficiently
clear? What additional clarifications, if any, would be helpful? Should
the FDIC define any additional terms?
Question 2: Is the distinction, legal or otherwise, between
conversion, redemption, or repurchase of payment stablecoins
sufficiently clear? Should the FDIC define conversion, redemption, or
repurchase? If so, how? Should the FDIC define ``redemption'' broadly
to mean that, for example, the PPSI has initiated payment to the
payment stablecoin holder in return for a tendered payment stablecoin?
Are there reasons to define ``redemption'' more narrowly? For example,
should the FDIC define redemption to mean that the PPSI's payment to a
payment stablecoin holder in exchange for a payment stablecoin has
settled on chain (without any initiation of payment in return for a
tendered payment stablecoin or associated settlement)?
Question 3: The FDIC proposes to define the term ``customer'' to
mean a person that purchases (through any consideration) the products
or services of a PPSI. Is this definition appropriately scoped? Should
the FDIC consider defining the term to also include persons with
indirect relationships with a PPSI, such as downstream payment
stablecoin holders? Why or why not?
Question 4: Is the term ``distributed ledger'' sufficiently clear?
Is it necessary to clarify and distinguish ledger types? Does the
phrase ``public digital ledger'' require regulatory clarity? Under what
conditions should restricted (permissioned) ledgers be classified as
``public?'' How should frameworks differentiate between fully open,
hybrid, and permissioned systems?
Question 5: Should the FDIC define the term ``smart contract?'' If
so, how?
Question 6: Is the definition of ``eligible financial institution''
sufficiently clear? Should the definition be revised to include
additional entities or exclude certain entities?
Question 7: Is the definition of ``fair value'' sufficiently clear?
How could the term be further refined or clarified?
Question 8: Is the term ``outstanding issuance value''
appropriately defined? If not, how could the term be revised, refined,
or clarified?
Question 9: Is the term ``payment stablecoin'' sufficiently clear?
Should the FDIC provide additional clarity as to whether a particular
type of stablecoin is a ``payment stablecoin'' under the GENIUS Act?
Question 10: Is the term ``private key'' appropriate? How could the
term be further amended, refined, or clarified?
Question 11: Is the term ``reserve asset'' sufficiently clear? How
could the term be further refined or clarified?
Question 12: Is the term ``significant redemption request''
sufficiently scoped? If not, how should the FDIC revise the definition?
Is 10 percent the appropriate threshold, and is 24 hours the
appropriate time period?
Question 13: The GENIUS Act refers to ``payment stablecoin
holders'' across various provisions, particularly with respect to
priority of claims, but the Act does not define the term. Should the
FDIC define the term? If so, should the term be defined to mean the
person that beneficially owns the payment stablecoin? Or should the
FDIC instead define the term based on possession via digital wallets or
control of private keys? What interactions with other requirements in
the proposed rule should the FDIC consider if it chooses to define the
term?
3. Severability (Proposed Sec. 350.2)
The FDIC is proposing to include a severability clause in proposed
Sec. 350.2, which would provide that the provisions of proposed part
350 are separate and severable from one another. In the event a court
stays a particular provision of this rule or determines any provision
is invalid, the FDIC intends that the remaining provisions shall
continue in effect.
4. Activities (Proposed Sec. 350.3)
Core Activities
Proposed Sec. 350.3 encompasses the range of activities that could
be performed by a PPSI, consistent with section 4(a)(7) of the GENIUS
Act (12 U.S.C. 5903(a)(7)).
Section 4(a)(7) of the GENIUS Act lists a narrow set of activities
that may be performed by a PPSI. Consistent with the Act, the FDIC is
proposing to limit a PPSI's activities as set out in section 4(a)(7) in
Sec. 350.3(a) of the proposed rule. First, a PPSI may only (1) issue
payment stablecoins; (2) redeem payment stablecoins; (3) manage
reserves related to payment stablecoins; and (4) provide custodial or
safekeeping services limited to certain assets.\16\ The management of
payment stablecoin reserves includes purchasing, selling, and holding
or holding under custody reserve assets, consistent with Federal and
State law.\17\ Custody and safekeeping services are limited to only the
holding of payment stablecoins, required payment stablecoin reserves,
or private keys of payment stablecoins. It does not include custody of
non-payment stablecoin digital assets.\18\ Proposed Sec. 350.2(a)(1)
through (4) of the proposed rule set out the limited range of PPSI
activities, which represent the core set of activities of a PPSI.
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\16\ 12 U.S.C. 5903(a)(7)(A)(i)-(iv).
\17\ 12 U.S.C. 5903(a)(7)(A)(iii).
\18\ Digital assets are defined in 12 U.S.C. 5901(6). The term
``digital asset'' can include payment stablecoins, however the Act
specifically allows for a PPSI to custody or keep safe payment
stablecoins.
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Activities Directly Supporting Core Activities
Additionally, section 4(a)(7)(A)(v) of the GENIUS Act (12 U.S.C.
5903(a)(7)(A)(v)) provides that a PPSI may undertake other activities
that ``directly support'' any of the core activities of issuing and
redeeming payment stablecoins, managing payment stablecoin reserves,
and providing custody and safekeeping services, as limited by the Act.
The allowance of these other supporting activities is reflected in
proposed Sec. 350.3(a)(5).
The FDIC would view activities that directly support the core
activities enumerated in the Act as only those that would be considered
necessary for the PPSI to have the capability to perform the permitted
activities or that are fundamental to the operations in performing the
core activities. Examples might be hosting digital wallet
infrastructure using cloud platforms or on-premises, air-gapped
hardware security modules to provide secure safekeeping of payment
stablecoin

[[Page 18538]]

private keys or providing other essential services.
Activities supporting a PPSI's issuance and redemption of payment
stablecoins, management of payment stablecoin reserves, and custody and
safekeeping for payment stablecoins are limited to direct support
activities, and are irrespective of whether they are performed by a
PPSI itself, or through arrangement with an affiliate or a third party.
If a PPSI has questions about whether an activity would be
considered by the FDIC to be one directly supporting its core
activities of issuing or redeeming payment stablecoins, managing
payment stablecoin reserve assets, or providing safekeeping and custody
services, the PPSI should contact the FDIC. The FDIC is seeking comment
on whether there should be a more formal process for clarifications
around permissibility, including whether the FDIC should provide
additional clarity to the public through long-established channels such
as financial institution letters, published frequently asked questions,
or other means.
Activities Subject to FDIC Approval
Beyond the core activities and those that directly support those
activities, section 4(a)(7)(B) of the GENIUS Act (12 U.S.C.
5903(a)(7)(B)) provides a rule of construction such that none of a
PPSI's activities discussed above (i.e., issuance, redemption, managing
reserve assets, limited custody, etc.) are to be construed as a
limitation on certain incidental activities or digital asset service
provider activities if the activities are authorized by the FDIC.
Digital asset service provider activities encompass: (1) exchanging
digital assets for monetary value; (2) exchanging digital assets for
other digital assets; (3) transferring digital assets to a third party;
(4) acting as a digital asset custodian; and (5) participating in
financial services relating to digital asset issuance.\19\ The FDIC is
intending to adhere to the Act's rule of construction by proposing
Sec. 350.3(a)(6).
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\19\ 12 U.S.C. 5901(7)(A). Not included in the activities of a
digital asset service provider are engaging as a digital ledger
protocol; developing, operating, or engaging in the business of
developing distributed ledger protocols or self-custodial software
interfaces; as an immutable and self-custodial software interface;
developing, operating, or engaging in the business of validating
transactions or operating a distributed ledger; or participating in
a liquidity pool or other similar mechanism for the provisioning of
liquidity for peer-to-peer transactions. 12 U.S.C. 5901(7)(B).
---------------------------------------------------------------------------

The FDIC's authority to approve these activities is limited to
those activities specified by the Act that are consistent with all
other Federal and State laws, and provided that in any insolvency
proceedings described under section 11 of the Act (12 U.S.C. 5911), the
activities would not jeopardize the claims of payment stablecoin
holders, which would rank senior to claims of non-payment stablecoin
creditors.\20\ The FDIC seeks comment on how to interpret section
4(a)(7)(B) of the GENIUS Act (12 U.S.C. 5903(a)(7)(B)) and whether it
serves as an independent grant of authority or whether it must be
consistent with a grant of authority provided from another Federal or
State law.
---------------------------------------------------------------------------

\20\ See 12 U.S.C. 5903(a)(7)(B).
---------------------------------------------------------------------------

Related Fee Activity and Customer Buy, Sell Facilitation
Section 16(b) of the GENIUS Act (12 U.S.C. 5915(b)) provides that
entities regulated by the FDIC as the primary Federal payment
stablecoin regulator, namely PPSIs, are authorized to engage in payment
stablecoin activities and investments contemplated by the Act,
including acting as principal or agent with respect to any payment
stablecoin and the payment of fees to facilitate customer transactions.
As a result, beyond the activities outlined in section 4 of the Act
(core, direct support, and approvable activities), but consistent with
them, proposed Sec. 350.3(a)(9) would provide that a PPSI may
undertake any activity contemplated by the GENIUS Act in the capacity
of principal or agent with respect to any payment stablecoin, if
consistent with the Act. Proposed Sec. 350.3(a)(7) and (8) also list
among the permitted activities of a PPSI the assessment of fees
associated with purchasing or redeeming payment stablecoins and the
payment of fees to facilitate customer transactions, which the FDIC
views as incidental to the issuance and redemption of payment
stablecoins consistent with law and not affecting the claims of payment
stablecoin holders in any insolvency proceedings.
Prohibitions
In addition to setting out what is permitted, the GENIUS Act
prescribes several prohibited activities. Consistent with the GENIUS
Act, proposed Sec. 350.3(b) would clarify that PPSIs may not engage in
certain activities.
Use of Deceptive Names
Proposed Sec. 350.3(b)(1) would prohibit a PPSI from using any
combination of terms related to the United States Government,
including, but not limited to ``United States,'' ``United States
Government,'' and ``USG'' in the name of a payment stablecoin,
consistent with section 4(a)(9) of the GENIUS Act (12 U.S.C.
5903(4)(a)(9)). Proposed Sec. 350.3(b)(2) would prohibit a PPSI from
marketing a payment stablecoin in a manner that a reasonable person
would perceive the payment stablecoin to be legal tender, issued by the
United States, or guaranteed or approved by the United States
Government, consistent with section 4(e)(2) of the GENIUS Act (12
U.S.C. 5903(e)(2)). The prohibitions in proposed Sec. 350.3(b)(1) and
(2) would not apply to abbreviations of currency that the PPSI is
obligated to convert, redeem, or repurchase for a fixed amount of
monetary value, as described in proposed Sec. 350.3(c).
Consistent with section 4(e) of the GENIUS Act (12 U.S.C. 5903(e)),
proposed Sec. 350.3(b)(3) would provide that a PPSI may not directly
or through implication represent that payment stablecoins are backed by
the full faith and credit of the United States, guaranteed by the
United States Government, or subject to Federal deposit insurance or
Federal share insurance.\21\ Although disclaimers may be components of
complying with these requirements, the FDIC also expects PPSIs to
appropriately ensure that representations, marketing materials, and
disclosures are clear and consistent with these requirements to avoid
direct representations or implications that are likely to cause
confusion.
---------------------------------------------------------------------------

\21\ In addition, section 18(a)(4) of the FDI Act, 12 U.S.C.
1828(a)(4), and its implementing regulation, 12 CFR part 328, also
prohibit any person from misusing the name or logo of the FDIC,
engaging in false advertising, or making knowing misrepresentations
about deposit insurance.
---------------------------------------------------------------------------

Interest and Yield Solely in Connection With Holding, Use, or Retention
Proposed Sec. 350.3(b)(4) would prohibit a PPSI from paying the
holder of any payment stablecoin any form of interest or yield (whether
in cash, tokens, or other consideration) solely in connection with the
holding, use, or retention of such payment stablecoin consistent with
section 4(a)(11) of the GENIUS Act (12 U.S.C. 5903(a)(11)). The
proposed rule would further provide that the FDIC presumes a PPSI
violates the prohibition if: (A) the PPSI has a contract, agreement, or
other arrangement with an affiliate of the PPSI or related third party
to pay interest or yield to the affiliate or related third party; (B)
the affiliate, related third party, or an affiliate of a related third
party has a contract, agreement, or other arrangement to pay interest
or yield (whether in cash, tokens, or other consideration) to a holder
of any payment stablecoin issued by the PPSI solely in connection with
the holding,

[[Page 18539]]

use, or retention of such payment stablecoin; and (C) to the extent the
person, or an affiliate of the person, is a related third party of the
PPSI because the PPSI issues payment stablecoins on the related third
party's behalf or under the related third party's branding, the
arrangement between the related third party and the holder of the
payment stablecoin would consider the holder of the payment stablecoin
to be the holder of the payment stablecoin issued by the PPSI on the
related third party's behalf or under the related third party's
branding.
With respect to this presumption, the proposed rule would define a
related third party to mean (A) a person offering to pay interest or
yield to payment stablecoin holders as a service; and (B) any person
that the PPSI issues payment stablecoins on the person's behalf or
under the person's branding. A PPSI may rebut the presumption by
submitting written materials that, in the FDIC's judgment, demonstrate
that the contract, agreement, or other arrangement is not prohibited
under proposed Sec. 350.3(b)(4) and not an attempt to evade the
prohibition.
The FDIC seeks comment on this specific part of the proposal, and
whether this is an appropriate interpretation and implementation of the
prohibition in section 4(a)(11) of the GENIUS Act (12 U.S.C.
5903(a)(11)).
Pledging, Rehypothecating, and Reusing Reserve Assets
Proposed Sec. 350.3(b)(5) would prohibit a PPSI from pledging,
rehypothecating, or reusing any reserve assets required under Sec.
350.4(a) and (e) of the proposed rule either directly or indirectly,
including through a third party custodian of the reserve assets, except
for the exceptions described in proposed Sec. 350.3(b)(5)(i) through
(iii), consistent with section 4(a)(2) of the GENIUS Act. A PPSI may
only pledge, rehypothecate or re-use any reserve assets for the purpose
of: (i) satisfying margin obligations in connection with investments in
required reserves under proposed Sec. 350.4(e)(5) or (6); (ii)
satisfying obligations associated with the use, receipt, or provision
of standard custodial services; or (iii) creating liquidity to meet
reasonable expectations of requests to redeem payment stablecoins, such
that reserves in the form of Treasury bills with a maturity of 93 days
or less may be sold as purchased securities in repurchase agreements,
provided that either: (A) the repurchase agreements are cleared by a
clearing agency registered with the Securities and Exchange Commission;
or (B) the PPSI receives prior written approval from the FDIC. With
respect to any repurchase agreement under proposed Sec. 350.4(e)(6),
the FDIC will deem them as approved wherein the Treasury bills that are
sold as purchased securities have a maturity of 93 days or less and the
liquidity obtained through the repurchase agreement is not being
obtained for purposes other than meeting redemption requests. The FDIC
is proposing to limit the amount of reserve assets that a PPSI can
pledge, rehypothecate, or reuse directly or indirectly, including
through a custodian, which would include affiliates of the custodians
or sub-custodians, to ensure that reserve assets remain liquid and
payment stablecoin holders have confidence in the payment stablecoin.
Although there are exemptions to the prohibition on pledging,
rehypothecating, or reusing reserve assets, the FDIC expects that the
PPSI would rely on the exemptions only as necessary for the purposes
described in proposed Sec. 350.3(b)(5)(i) through (iii), and not for
any other business purpose.
Evasion
Proposed Sec. 350.3(b)(6) would prohibit a PPSI from engaging in
any activity that the FDIC determines is done in evasion of the
requirements, standards, or prohibitions found in section 4 of the
GENIUS Act or proposed part 350. This paragraph is consistent with
section 4(h)(1) of the GENIUS Act (12 U.S.C. 5903(h)) which gives the
FDIC the authority to issue regulations to prevent evasions of section
4 of the GENIUS Act.
Unlawful Marketing
Proposed Sec. 350.3(b)(7) would prohibit a PPSI from marketing a
product in the United States as a payment stablecoin, or from issuing a
payment stablecoin, unless the product or payment stablecoin is issued
in compliance with the GENIUS Act and part 350. This paragraph is
consistent with section 4(e)(3)(A) of the GENIUS Act (12 U.S.C.
5903(e)(3)(A)) which makes it unlawful to market a product in the
United States as a payment stablecoin unless it is issued pursuant to
the GENIUS Act. The FDIC will monitor FDIC-supervised PPSI's marketing,
as appropriate, to ensure that they do not violate the GENIUS Act or
part 350 of the proposed rule, and for referral to the Department of
Treasury for possible violation of section 4(e)(3)(A) of the GENIUS
Act.
Providing Credit
The FDIC is also proposing to prohibit a PPSI from providing credit
to its customers to purchase payment stablecoins in Sec. 350.3(b)(8)
of the proposed rule. The FDIC interprets the GENIUS Act's requirements
that a PPSI maintain reserve assets comprised of a narrow set of highly
liquid assets and that a PPSI engage in a narrow set of activities to
be the key guardrails to ensure a PPSI is able to satisfy redemption
requests. If a PPSI lends funds to customers to enable customers to
purchase payment stablecoins, or were to otherwise issue payment
stablecoins to customers on credit extended by the PPSI, the PPSI would
then, in effect, need to access separate funding to acquire and
maintain identifiable reserve assets to back the payment stablecoins
issued on credit. This could result in a highly leveraged balance sheet
in which the reserve assets do not provide the intended resiliency. The
FDIC seeks comment on whether this is an appropriate prohibition, and
whether other alternatives would better achieve the Act's objectives.
Questions for Activities Section (Proposed Sec. 350.3)
The FDIC requests comment on the activities described in proposed
Sec. 350.3, including the following:
Question 14: Are there any other activities that the FDIC did not
include in proposed Sec. 350.3 that PPSIs would need to, or should be
able to, engage in under the GENIUS Act? If so, please describe the
kinds of activities and any appropriate limits for such activities.
Question 15: Are there other limits or conditions the FDIC should
consider with respect to PPSIs acting as principal or agent with
respect to payment stablecoins? Should the FDIC specify the activities
contemplated under the GENIUS Act for which a PPSI may act as principal
or agent for payment stablecoins under section 16(b) of the Act (12
U.S.C. 5915(b))?
Question 16: Should the FDIC clarify proposed Sec. 350.3(a)(6) by
providing specific examples of activities that are incidental to the
activities in proposed Sec. 350.3(a)(1) through (4)? Are there
specific examples of activities that are incidental to the activities
in proposed Sec. 350.3(a)(1) through (4) that should be clarified?
Question 17: Should the FDIC include by rule at proposed Sec.
350.3 a process for the FDIC to approve additional activities? Should
the FDIC adopt a formal process for clarifications around permissible
activities, including through long-established channels such as
financial institution letters, published frequently asked questions, or
by other means? If so, how should the processes work? How should the
FDIC coordinate such a process with other primary Federal payment
stablecoin regulators?

[[Page 18540]]

Question 18: Should the FDIC distinguish between what it means for
an activity to directly support the activities in proposed Sec.
350.3(a)(1) through (4), and therefore, satisfy the test in proposed
Sec. 350.3(a)(5) as opposed to what it means for an activity to
satisfy the test in proposed Sec. 350.3(a)(6) and be incidental to the
activities in proposed Sec. 350.3(a)(1) through (4), as provided in
section 4(a)(7)(B) of the GENIUS Act?
Question 19: Are there additional steps the FDIC should take to
ensure representations and disclosures by PPSIs are clear and minimize
the risk of consumer confusion? Should the FDIC require PPSIs to
provide specific disclosures or statements? Should the FDIC provide
examples of specific representations that would be prohibited under
proposed Sec. 350.3(b)?
Question 20: Is any further clarity needed regarding the
prohibition on the use of deceptive names, marketing, and
representations in proposed Sec. 350.3(b)(1) through (3)?
Question 21: Is it appropriate for the FDIC to apply the GENIUS
Act's prohibition on paying interest or yield to affiliates and related
third parties? Are there alternatives the FDIC should consider?
Question 22: Should the FDIC include a rebuttable presumption
regarding the payment of interest or yield by an affiliate or related
third party? If so, should the FDIC provide additional clarity on how
the presumption could be rebutted?
Question 23: Should the prohibition on interest and yield in
proposed Sec. 350.3(b)(4) clarify the terms ``pay,'' ``interest,''
``yield,'' ``solely,'' or any other terms? If so, what clarifications
would be helpful? What types of rewards, if any, should or should not
be subject to the prohibition?
Question 24: What would the economic or market impact of a narrow
prohibition on paying interest or yield solely in connection with the
holding, use, or retention of a payment stablecoin be relative to a
broader prohibition (i.e., one that includes relationships with
affiliates or third parties)?
Question 25: Is the scope of the prohibition against pledging,
rehypothecating, or reusing reserve assets sufficiently clear? Are
there specific types of transactions, relationships, or structures for
which it would be helpful to clarify whether the prohibition applies?
For example, should the FDIC clarify whether the prohibition would
prevent establishing a collateral trustee that would hold a security
interest in reserve assets for the benefit of payment stablecoin
holders? What arguments weigh for and against finding that the
prohibition would prohibit these arrangements?
Question 26: Should the FDIC cap the total amount of reserve assets
that a PPSI can pledge or rehypothecate to maximize payment stablecoin
holders' recoveries in the event of a bankruptcy or economic stress
event? Are there business reasons for why a PPSI would want to
rehypothecate a significant amount of their reserve assets? If so, what
controls would PPSIs have in place to ensure those rehypothecated
assets are returned at 100 percent of their asset value in time to meet
redemptions, and mitigate other associated risks? Which scenarios or
risks could cause these rehypothecated assets to lose value or not be
returned at original value?
Question 27: Should the FDIC specify what ``creating liquidity to
meet reasonable expectations of requests to redeem payment
stablecoins'' means under proposed Sec. 350.3(b)(5)(iii)? Should the
FDIC pre-approve repurchase agreements by rule as proposed in Sec.
350.3(b)(5)(iii)(B)? Alternatively, should the FDIC allow for broad and
open-ended approvals of the sale of reserves as purchased securities in
repurchase agreements or should approvals be limited to specific types
of transactions? What factors should the FDIC consider prior to
granting approval of the sale of reserves as purchased securities in
repurchase agreements under proposed Sec. 350.3(b)(5)(iii)(B)?
Question 28: Is the proposed prohibition on providing credit to
customers to purchase payment stablecoins appropriate? If so, should
the prohibition be modified in any way? Should it be narrower or
broader? If not, are there alternatives to achieve the intended
objective or ensuring reserve assets achieve the intended resiliency?
Are there any other activities that the FDIC should expressly prohibit
as not being permissible and not in direct support of the core
activities of issuance, redemption, managing reserves, and providing
certain safekeeping and custody services?
5. Reserve Assets (Proposed Sec. 350.4)
Reserve Requirement
Proposed Sec. 350.4 contains requirements applicable to reserve
assets as required by section 4(a) of the GENIUS Act (12 U.S.C.
5903(a)), which provides that a PPSI must maintain identifiable
reserves backing the outstanding payment stablecoins of the PPSI on an
at least one-to-one basis and specifies the required reserve asset
types.
Proposed Sec. 350.4(a)(1) would require the PPSI to maintain
identifiable reserves fully backing the outstanding payment stablecoins
of the PPSI, the reserve asset value of which must at all times meet or
exceed the total outstanding issuance value of payment stablecoins
issued by the PPSI. To maintain ``identifiable reserves,'' the PPSI
shall maintain appropriate records to identify required reserve assets
underlying a particular payment stablecoin. The FDIC generally
anticipates that reserve assets will be recorded on the PPSI's balance
sheet under GAAP and be included in the quarterly reports required
under proposed Sec. 350.7 and on Consolidated Reports of Condition and
Income (Call Reports) for the parent IDI. Proposed Sec. 350.4(a)(2)
would require the PPSI to monitor the issuance and redemption of
payment stablecoins to ensure compliance. To maintain reserves at all
times, the PPSI would monitor the value of the required reserves
underlying the payment stablecoin regularly throughout the day.
However, the PPSI would only need to notify the FDIC as described in
proposed Sec. 350.4(i)(1) if the reserve asset value of the required
reserves is less than the par value of outstanding payment stablecoins
at the PPSI's close of business. Proposed Sec. 350.4(a)(3) would
require the PPSI to maintain reserves directly or maintain them in the
custody of an eligible financial institution.
Reserve Asset Value
Proposed Sec. 350.4(b) provides that for purposes of calculating
the reserve asset value of the reserve assets backing each outstanding
payment stablecoin issued by the PPSI, reserve assets shall be valued
at fair value, with the exceptions of United States coins and currency
which shall be valued at face value. Valuing reserve assets at fair
value would result in reserve assets reflecting market prices at that
time and ensure that the PPSI has sufficient reserves to meet
redemption requests at par value. U.S. coins include those minted of
precious metals, such as gold and silver. Valuing coins at fair rather
than par value could lead to gold or silver, in coin form, backing
payment stablecoins, which the FDIC believes is not consistent with
Congressional intent.
Identifiable Reserves
Proposed Sec. 350.4(c) would require that reserves maintained by a
PPSI are readily identified as backing outstanding payment stablecoins
issued and differentiated from assets not backing payment stablecoins,
particularly when the PPSI issues more

[[Page 18541]]

than one distinguishable brand \22\ of payment stablecoin. A PPSI may
issue multiple brands of distinct payment stablecoin but, under the
proposal, would be required to maintain required reserves with assets
that can be separately identified as backing a particular brand of
distinct payment stablecoin and each brand of payment stablecoin would
independently comply with proposed Sec. 350.4(a). Thus, if a PPSI
issues more than one brand of distinct payment stablecoin, each payment
stablecoin must have a segregated pool of reserves, kept, maintained,
and recorded separately, unless the FDIC approves in writing that the
PPSI may comingle reserves.
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\22\ For purposes of this proposal, the FDIC is using the term
``brand'' to describe each legally distinguishable payment
stablecoin issued by the same PPSI.
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If one of the PPSI's payment stablecoins fails to maintain reserves
on a one-to-one basis to its outstanding issuance value, in some cases,
that may erode market confidence in the PPSI's other brands of payment
stablecoins, even as the PPSI maintains separate required reserves
identifiable for each brand of payment stablecoin. Under the proposal,
the FDIC would expect, at a minimum, that a PPSI with multiple brands
of payment stablecoins maintain separate and segregated pools of
reserves for each payment stablecoin to protect against the contagion
risk from one payment stablecoin failing. The PPSI would also be
expected to regularly monitor the value of reserves for each brand of
payment stablecoin, with the ability to immediately identify if any one
brand of payment stablecoin falls below the required threshold in
proposed Sec. 350.4(a) of the proposed rule. Further, the FDIC would
expect that PPSIs with multiple brands of payment stablecoin would
establish clear procedures for winding down a brand of payment
stablecoin without disrupting the PPSI's other payment stablecoins.
The FDIC invites comment on these considerations, particularly how
to address risk of instability from a PPSI that issues more than one
brand of payment stablecoin. The proposal requires a PPSI to maintain
identifiable and segregated reserve assets for each payment stablecoin.
Further, the reserve assets identified as satisfying the statutory 1:1
reserve requirement of each brand of payment stablecoin would be
required to only be used as required reserves supporting the payment
stablecoin to which the reserves are identified.
Under this approach, reserve assets required to satisfy the
statutory 1:1 reserve requirement for one payment stablecoin could not
be used to meet redemptions requests for another payment stablecoin
issued by the same PPSI. Such an approach would promote transparency
regarding the assets supporting each payment stablecoin and help ensure
that potential liquidity risks associated with one payment stablecoin
would not be transferred to holders of another payment stablecoin
issued by the same PPSI.
However, the FDIC recognizes that in the ordinary course of
business, a PPSI may hold reserve assets in excess of that which are
necessary to maintain the statutory 1:1 reserve requirement for a
particular payment stablecoin. Required reserves that maintain the
statutory 1:1 ratio would be required to remain segregated and
dedicated to the payment stablecoin to which they relate and could not
be used to satisfy redemption requests for another payment stablecoin.
However, if the amount of reserve assets exceeds the 1:1 ratio for a
particular stablecoin, the PPSI may remove reserve assets from that
payment stablecoin's pool of reserve assets and use those reserve
assets to meet redemption requests of another payments stablecoin, but
only so long as the payment stablecoin with ``excess reserves'' remains
above the 1:1 ratio.
The FDIC also notes there are other alternative approaches the FDIC
could take. The FDIC could take an approach that all reserves
identified and segregated to each payment stablecoin cannot be removed
from that pool of reserve assets without approval from the FDIC or
public notice. Another alternative approach would be to permit a PPSI
that issues multiple payment stablecoins to maintain one reserve asset
pool backing all of the PPSI's outstanding payment stablecoins, without
segregating reserve assets that back each individual payment
stablecoin. Another alternative approach would be to limit each PPSI to
only issuing one payment stablecoin, thus requiring an FDIC-supervised
IDI that wanted to set up an entity to issue multiple payment
stablecoin brands would need to set up a separate subsidiary approved
by the FDIC to issue each payment stablecoin.
The FDIC requests comment on all aspects of this proposed approach
including whether it appropriately addresses risks that may arise for a
single PPSI that issues multiple brands of payment stablecoins.
Monetization Capability
Proposed Sec. 350.4(d) would require that a PPSI demonstrate the
operational capability to access and monetize reserve assets,
commensurate with the PPSI's risk profile and business model. The PPSI
must be able to monetize the reserve assets, potentially quickly and at
short notice, to meet redemption requests. If the PPSI was unable to
quickly monetize reserve assets, then the PPSI would not be able to
show that it can maintain a stable value, or retain the expectation of
maintaining a stable value, relative to the value of a fixed amount of
monetary value. To comply with the proposed monetization capability
requirement, the PPSI would be expected to demonstrate that it can
quickly and efficiently monetize its reserve assets that underlie each
payment stablecoin. A smaller, less complex PPSI could satisfy this
requirement by demonstrating the ability to monetize reserve assets by
establishing appropriate arrangements with counterparties through which
it can quickly sell reserve assets at fair value and receive liquid
funds that can be used for redemptions. A PPSI could also demonstrate
an arrangement with its parent IDI that would provide funding through
purchases of the PPSI's reserves. However, PPSIs would likely regularly
monetize reserve assets in managing reserves in the ordinary course of
business and should be able to demonstrate on a regular basis that the
PPSI has adequate monetization channels commensurate with the PPSI's
risk profile and business model.
Reserve Composition
Under proposed Sec. 350.4(e), commensurate with the PPSI's risk
profile and business model, reserve assets shall only be comprised of:
(1) United States coins and currency (including Federal Reserve notes);
(2) money standing to the credit of an account with a Federal Reserve
Bank; (3) funds held as demand deposits or other deposits that may be
withdrawn upon request at any time at an IDI or insured shares held by
an insured credit union (including any foreign branches or agents,
including correspondent banks, of an IDI); (4) Treasury bills, notes,
or bonds with a remaining maturity of 93 days or less, or issued with a
maturity of 93 days or less; (5) money received under repurchase
agreements with the PPSI acting as a seller of securities and with an
overnight maturity backed by Treasury bills with a maturity of 93 days
or less provided the money is received consistent with one or more of
the

[[Page 18542]]

allowable exceptions to rehypothecation, reuse, or pledging as
circumscribed in 12 U.S.C. 5903(a)(2); (6) reverse repurchase
agreements with the PPSI acting as a purchaser of securities and with
an overnight maturity that are collateralized by Treasury notes, bills,
or bonds on an overnight basis, subject to overcollateralization in
line with standard market terms, that are: (i) tri-party; (ii)
centrally cleared through a clearing house registered with the
Securities and Exchange Commission; or (iii) bilateral with a
counterparty that the issuer has determined to be adequately
creditworthy even in the event of severe market stress; and (7)
securities issued by an investment company registered under section
8(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-8(a)), or
other registered Government money market fund, and that are invested
solely in underlying assets described in proposed Sec. 350.4(e)(1)
through (6). Proposed Sec. 350.4(e)implements section 4(a)(1)(A) of
the GENIUS Act (12 U.S.C. 5903(a)(1)(A)).
Asset Diversification and Concentration
Section 4(a)(4)(A)(iii) of the Act (12 U.S.C. 5903(a)(4)(A)(iii))
requires the FDIC to issue regulations implementing reserve asset
diversification, including deposit concentration at banking
institutions and interest rate risk management standards that are
tailored to the business model and risk profile of the PPSI and that do
not exceed standards that are sufficient to ensure the ongoing
operations of the PPSI. Proposed Sec. 350.4(f) would implement
tailored reserve asset diversification requirements.
Given the narrow scope of eligible reserve assets, the FDIC does
not believe extensive asset diversification requirements are necessary.
However, the FDIC is seeking comment on whether limitations on any
specific reserve asset category or other restrictions on reserve asset
concentration would be appropriate. For example, given that uninsured
deposits present credit risk, the FDIC seeks comment on whether there
should be limits on the extent to which reserve assets may be held in
deposits not insured by the FDIC.
Proposed Sec. 350.4(f) would require that a PPSI limit its total
counterparty exposure to any one eligible financial institution,
regardless of type of reserve asset, to no more than 40 percent of its
reserve assets, across all brands of payment stablecoins issued by the
PPSI. This requirement would limit a PPSI from being overly exposed to
or concentrated in a single eligible financial institution. The PPSI
should take into account exposure across all of an eligible financial
institution's parents, subsidiaries, or affiliates, in terms of its
risk management required under proposed Sec. 350.4(f) of the proposed
rule, so the PPSI minimizes its risk of being subject to the health of
a single eligible financial institution. This requirement would ensure
that a PPSI has multiple arrangements for meeting redemption requests
if reserve assets held by any one eligible financial institution are at
risk. The FDIC selected 40 percent so no single eligible financial
institution custodies a majority of the PPSI's reserve assets.
Monthly Report on Reserve Composition
Proposed Sec. 350.4(g) would require PPSIs to publish, for each
brand of payment stablecoin issued by the PPSI, by close of business on
the last day of each month, the composition of the PPSI's reserves held
pursuant to proposed Sec. 350.4(e) as of close of business of the last
day of the prior month, using a format substantially similar to the
template provided in table 1 to proposed Sec. 350.4(g). The report
should contain the total number of outstanding payment stablecoins
issued by the PPSI, including the average tenor and geographic location
of custody of each category of reserve asset. The report should contain
information as of the previous month. These public disclosures are not
required to include specific information on the institutions, branches,
or counterparties involved in the holding of reserve assets.
Monthly Certification; Examination of Reports by Registered Public
Accounting Firm
Proposed Sec. 350.4(h)(1) would require PPSIs to have the
information disclosed in the previous month-end report as required in
proposed Sec. 350.4(g) examined by a registered public accounting firm
which will issue a written report of findings to the PPSI's audit
committee, or board of directors if there is no audit committee. In
addition, the PPSI shall publish the report on its website at the same
time as the report under proposed Sec. 350.4(g). Consistent with
section 4(a)(3) of the GENIUS Act (12 U.S.C. 5903(a)(3)), proposed
Sec. 350.4(h)(2) would require the chief executive officer and chief
financial officer of a PPSI, or persons performing the equivalent
functions, to submit a certification of the accuracy of the monthly
report to the FDIC, including a copy of the written report prepared in
proposed Sec. 350.4(h)(1). Consistent with section 4(a)(3)(C) of the
GENIUS Act (12 U.S.C. 5903(a)(3)(C)), any person who submits this
required certification knowing that such certification is false shall
be subject to the same criminal penalties as those set forth under 18
U.S.C. 1350(c).
Failure To Meet Minimum Reserve Assets Requirement
Proposed Sec. 350.4(i)(1) provides that a PPSIs shall notify the
FDIC in writing when the PPSI determines or has reasonable grounds to
suspect that the aggregate fair value of identified reserves backing
any of the PPSI's outstanding payment stablecoins is less than the
amount required under proposed Sec. 350.4(a). Proposed Sec.
350.4(i)(1) would also provide that, upon notification by a PPSI that
identified reserves have fallen below the amount required under
proposed Sec. 350.4(a), the FDIC in its sole discretion may take any
of the steps described below.
Proposed Sec. 350.4(i)(1)(i) would enable the FDIC to direct a
PPSI to suspend or reduce issuance of a payment stablecoin, until the
aggregate fair value of identifiable reserves backing the brand of
payment stablecoins exceeds the outstanding issuance value of the
particular payment stablecoin. Proposed Sec. 350.4(i)(1)(ii) would
enable the FDIC to direct the PPSI to take measures to increase the
aggregate value of identifiable reserves until the aggregate value of
identifiable reserves backing outstanding payment stablecoins exceeds
the value of outstanding payment stablecoins. Finally, proposed Sec.
350.4(i)(1)(iii) would enable the FDIC to direct the PPSI to begin
orderly redemption of the payment stablecoin in light of exigent
circumstances.
Proposed Sec. 350.4(i) is intended to give the FDIC discretion in
supervising a PPSI and to protect payment stablecoin holders. The FDIC
recognizes that different tools may be appropriate for different
circumstances, and thus believes allowing discretion would be valuable.
Restoration Plan
Proposed Sec. 350.4(j) would require PPSIs to maintain a written
contingency plan describing the measures that it will take to restore
compliance with the requirements in proposed Sec. Sec. 350.4(a)(1) or
(e) or 350.9 if the PPSI is not meeting those requirements. The FDIC
would expect the plan to include reserve monitoring systems that would
trigger alerts to the PPSI when falling below specific thresholds,
actions the PPSI will take as the fair value reserves fall below
specific thresholds, and delineate

[[Page 18543]]

immediate steps that the PPSI shall take. The PPSI may consider
identifying pre-arranged funding sources and designate responsible
staff with authority to decide what steps the PPSI shall take to comply
with proposed Sec. Sec. 350.4(a) and 350.9.
Proposed Sec. 350.4(i) and (j) do not limit the FDIC's authority
to pursue other appropriate measures with respect to the PPSI or the
payment stablecoin.
Questions for Reserves Assets Section (Proposed Sec. 350.4)
The FDIC requests comment on the reserve asset requirements
contained in proposed Sec. 350.4, including the following:
Question 29: Is the description of maintaining ``identifiable''
reserves sufficiently clear? Is the FDIC's description of
``identifiable'' in proposed Sec. 350.4(c) appropriate or should the
proposed rule include additional measures to ensure that reserve assets
are appropriately traceable and linked to their corresponding brand of
payment stablecoin so as to avoid any difficulties in resolving claims
to reserve assets? How could the term be further defined or clarified?
Question 30: Should the proposed rule require PPSIs to structure or
title reserve assets in a prescribed manner as part of the requirement
to maintain ``identifiable'' reserves? If so, what measures should the
proposed rule include to ensure a treasury management structure is
bankruptcy remote? What specific asset holding titles would prevent a
PPSI from using reserve assets for operational purposes or lending them
out? Is the FDIC's description of ``identifiable'' in proposed Sec.
350.4(c) appropriate or should the proposed rule include additional
measures to ensure that reserve assets are appropriately traceable and
linked to their corresponding brand of payment stablecoin so as to
avoid any difficulties in resolving claims to reserve assets?
Question 31: How should the FDIC approach a PPSI that wants to
issue more than one brand of payment stablecoin? Should the FDIC impose
any limits or controls on the ability of a PPSI to issue more than one
brand of payment stablecoin?
Question 32: If a PPSI issues more than one brand of stablecoin,
should the FDIC require the reserve assets for each brand to be
segregated, as in the proposal, or should the PPSI be permitted to
comingle the reserve assets, such that there would be one pool of
reserve assets for all payment stablecoins issued by the PPSI? What are
the pros and cons of each alternative?
Question 33: Should the FDIC require reserve assets to be held in a
special purpose, bankruptcy remote vehicle?
Question 34: Section 4(a)(1)(A)(vii) of the GENIUS Act (12 U.S.C.
5903(a)(1)(A)(vii)) provides that reserve assets may include ``any
other similarly liquid Federal Government-issued asset approved by the
Federal payment stablecoin regulator, in consultation with the State
payment stablecoin regulator, if applicable.'' In the proposed rule,
the FDIC has not included any such assets in the list of eligible
reserve assets. Should the FDIC include a list of approved reserve
assets in proposed Sec. 350.4(e) for ``similarly liquid Federal
government-issued assets?'' If so, what asset(s) should be included?
Alternatively, should the FDIC implement a procedure for approvals in
the future of ``similarly liquid federal government-issued assets?'' If
so, how should this process work? Should there be an interagency
process with the other primary Federal payment stablecoin regulators?
Question 35: Should the provisions relating to repurchase
agreements and reverse repurchase agreements be clarified? Should the
FDIC provide that deposits can serve as collateral for repurchase
agreements? If so, what limitations, if any, should the FDIC include
with respect to the use of deposits as collateral?
Question 36: Should the FDIC include in its list of approved
reserve assets at proposed Sec. 350.4(e) an acknowledgment that
tokenized assets that comply with all applicable laws and regulations
will be permitted? If so, why? Should the FDIC include factors to
consider in approving a reserve asset in a tokenized form?
Question 37: Should the FDIC include by rule at proposed Sec.
350.4(e) a process for the FDIC to approve additional reserve asset
types in the future? If so, how should that process work? How should
the FDIC coordinate such a process with other payment stablecoin
regulators?
Question 38: Does proposed Sec. 350.4 provide for sufficient
information and disclosures to enable payment stablecoin holders to
understand reserve composition and sufficiently consider potential
risks related to inadequate reserves and insolvency?
Question 39: Should the FDIC require PPSIs to maintain a minimum
amount of reserve assets in the form of deposits? If yes, how would the
FDIC calibrate the deposit requirement for PPSIs? Should there be a
cutoff for PPSIs above or below a certain size threshold that should be
required to place deposits? If so, why? What would be the implications
of such a cutoff?
Question 40: Given that uninsured deposits present credit risk,
should there be a limit on the amount of reserve assets that can be
held in deposits that are not FDIC-insured or shares that are not NCUA-
insured?
Question 41: Consistent with the GENIUS Act, the proposed rule
would allow United States coins and currency to serve as reserve
assets. However, physical currency has limitations, especially if
needing to deploy physical currency as it requires transportation, to
meet redemption demands. Should the FDIC impose limits on physical
currency as a reserve asset in the proposed rule? For example, the FDIC
could require that United States coins and currency be limited to no
more than 5 percent or 10 percent of a PPSI's reserve assets. Should
the FDIC impose any additional requirements with respect to physical
currency to make sure that physical currency is safeguarded? Should
there be periodic verification or inspection requirements for United
States currency used as reserve assets?
Question 42: Should the proposed rule include special limits on
Treasury notes, bills and bonds and notes that may be more thinly
traded and therefore more likely to sell at a discount? The GENIUS Act
would allow PPSIs to hold as reserve assets Treasury notes and bonds so
long as they have a remaining maturity of 93 days or less. Older and
off-the-run Treasury securities may be more difficult to sell and may
only be marketable at a discount.
Question 43: Should the FDIC expressly require that a certain
percentage of reserve assets be held in custody at a third-party
custodian? What are the potential costs and benefits of this approach,
including with respect to operational risk?
Question 44: In the provision in proposed Sec. 350.4(e)(6)
regarding reverse repurchase agreements, is the proposed rule
sufficiently clear in its reference to ``overcollateralization in line
with standard market terms?'' What other clarifications should the FDIC
provide?
Question 45: Should the proposed rule include special measures to
ensure that reverse repurchase agreements are appropriately
overcollateralized? Proposed Sec. 350.4(e)(6) would permit the
inclusion reverse repurchase agreements ``subject to
overcollateralization in line with standard market terms'' as reserve
assets. In the proposed rule, the FDIC could include specific
requirements for overcollateralization or, in the alternative, include
no such measures

[[Page 18544]]

and leave it to the supervision process if PPSIs are failing to
overcollateralize their reverse repurchase agreements in line with
standard market terms.
Question 46: Should the FDIC exempt reserve assets held at a
Federal Reserve Bank from the conditions in proposed Sec. 350.4(f)?
Question 47: The reserve asset diversification and concentration
limits in proposed Sec. 350.4(f) limit a PPSI's exposure to no more
than 40 percent of its reserve assets. Are these concentration limits
appropriate? Are there other concentration percentages that would be
more appropriate and why?
Question 48: Should the FDIC adopt any other restrictions on
reserve asset concentration? If so, should these restrictions be based
on exposures to particular counterparties or be more prescriptive?
Question 49: Should the FDIC impose limits on the amount of reserve
assets that can be held in any particular category of reserve assets?
Question 50: Should the FDIC impose a principle-based requirement
that the PPSI maintain reserve assets that are sufficiently diverse to
manage potential credit, liquidity, interest rate, and price risks?
Should those be in addition to the proposed limitations in proposed
Sec. 350.4(f)?
Question 51: Should there be an exception to some or all of the
requirements in proposed Sec. 350.4(f) for a subsidiary of an FDIC-
supervised IDI approved to be a PPSI if the IDI has less than a certain
amount of total assets (e.g., $10 billion, $30 billion, $50 billion)?
Should a PPSI that is a subsidiary of an FDIC-supervised IDI with less
than a certain amount of total assets be permitted to hold a larger
percentage, or all, of its reserve assets as deposits at the FDIC-
supervised IDI? Should any such exception be subject to any conditions?
Should it only be available if the FDIC-supervised IDI is well-
capitalized?
Question 52: Should the FDIC require PPSIs to maintain a minimum
amount of their reserve assets in cash or cash equivalents or assets
that may more easily be used for short-term liquidity needs to
diversify the maturity profile of reserve assets, such as within a
daily or weekly timeframe, akin to the requirements for money market
funds in SEC Rule 2a-7 or short-term investment funds in 12 CFR
9.18(b)(4)(iii)? Should the FDIC require PPSIs to maintain a minimum
percentage of reserve assets (e.g., 10 percent) as ``immediately
available liquidity'' (i.e., deposits or insured shares payable upon
demand or money standing to the credit of an account with a Federal
Reserve Bank)? If so, should the FDIC impose a cap (e.g., 50 percent)
on how much required ``immediately available liquidity'' a PPSI can
maintain at any one eligible financial institution? Should the FDIC
require PPSIs to maintain a minimum percentage of reserve assets (e.g.,
30 percent) as ``liquidity available within one business week'' (i.e.,
deposits or insured shares payable upon demand, money standing to the
credit of an account with a Federal Reserve Bank, or amounts receivable
and due unconditionally within five business days on pending sales of
reserve assets, maturing reserve assets, or other maturing
transactions)? Should the FDIC impose requirements relating to the
weighted average maturity of the PPSI's stock of reserve assets, such
as requiring the weighted average maturity of the reserve assets to be
no more than 20 days? If the FDIC includes quantitative diversification
and concentration requirements like those mentioned above, should they
be structured as mandatory requirements or as a safe harbor?
Question 53: Should the FDIC impose restrictions on when a PPSI can
withdraw surplus reserve assets? Should the FDIC require that a PPSI
only withdraw any surplus reserve assets in excess of outstanding
issuance value once per month, upon the publication and certification
of the composition report?
Question 54: Is the FDIC's proposed approach to consequences when a
PPSI fails to meet minimum capital or operational backstop requirements
appropriate? Alternatively, should the proposed rule require a PPSI to
begin liquidating reserve assets at the end of two consecutive quarters
of failing to meet these requirements?
Question 55: The FDIC invites comment on the extent to which
additional diversification requirements are necessary. Should the FDIC
require that PPSIs maintain more than one type of reserve asset?
Question 56: Is the FDIC's proposed approach to consequences when a
PPSI's amount of reserves falls below the required minimum appropriate?
Alternatively, should the proposed rule require a PPSI to begin
liquidating reserve assets to meet redemption demands if the PPSI fails
to meet its minimum reserve asset requirement in proposed Sec.
350.4(a)?
Question 57: Section (4)(a)(1)(A)(ii) of the GENIUS Act (12 U.S.C.
5903 (a)(1)(A)(ii)) authorizes the FDIC to establish limitations in
respect of deposits placed as reserve assets by PPSIs at IDIs to
address safety and soundness risks to such IDIs. Should the FDIC impose
any such limitations? Should the FDIC establish a limitation that would
require an IDI to hold an amount of cash assets (e.g., balances at a
Federal Reserve Bank) equal to the amount by which deposits placed by
PPSIs for reserve purposes exceed a specified percentage of the IDI's
total deposits? If so, at what percentage of total deposits should such
a requirement be calibrated? Should the IDI be required to segregate
such cash assets, and if so, how would that be operationalized?
Alternatively, should the FDIC set a cap on the amount of deposits an
IDI can accept from any one PPSI, or across all PPSIs, for purposes of
holding reserve assets? If so, how should such a cap be calibrated? Are
there other types of relevant limitations that the FDIC should
consider?
Question 58: Should the FDIC cap the total amount of reserve assets
that a PPSI can pledge or rehypothecate (in aggregate, across all
counterparties) to maximize payment stablecoin holders' recoveries in
the event of a bankruptcy or stress event? What percentage of reserve
assets do PPSIs plan to rehypothecate, if at all? Which scenarios or
risks could cause these rehypothecated assets to lose value or not be
returned at original value and what controls can mitigate these risks?
Question 59: Should other liquidity rules be amended to accommodate
the changes made by the proposed rule and the GENIUS Act? Should the
liquidity coverage ratio (LCR) and net stable funding ratio (NSFR)
rules be amended so that depository institutions are unable to include
high quality liquid assets (HQLA) held by PPSI subsidiaries as eligible
HQLA in their own LCR and NSFR calculations? Similarly, should any
outflows associated with a PPSI subsidiary be excluded from a parent
entity's LCR calculations? Should the payment stablecoin activities of
permitted payment stablecoin subsidiaries be fully excluded from the
LCR calculations of parent entities? Or should there be a limited
outflow commensurate with the possibility that a parent entity may
provide support to a PPSI subsidiary (for example, 1 percent, 5
percent, or 10 percent or outstanding issuance value)? Should the LCR
rule be amended in light of any other implications of the GENIUS Act,
such as how it may apply to custodians under section 10 of the GENIUS
Act?
Question 60: For purposes of incorporating ``average tenor and
geographic location of custody of each category of reserve assets'' in
the composition report required under proposed Sec. 350.4(g), what, if
any,

[[Page 18545]]

specific content and structure should the FDIC require? Should the
composition report conform to a template? Should the FDIC require PPSIs
to state granular geographic location of custody or is stating by
country sufficient? Should the report include information about deposit
concentration and CUSIPs of securities? Should the required content
include the composition of the reserve assets by type of assets and
maturities and by counterparty issuer? For ``geographic tenor,'' are
there specific methods for calculating tenor that the rule should
require or permit?
Question 61: Are there any additional steps that the FDIC should
take to encourage transparency while minimizing burden with respect to
the reserve asset composition report?
Question 62: With respect to a PPSI that issues multiple brands of
payment stablecoins, such as in white label arrangements, what
modifications to the reporting requirements, including the reserve
asset composition report, would be appropriate? Are there any
additional disclosures that the PPSI should provide so the report is
not misleading?
Question 63: Should the composition report be required to list and
name any IDIs holding reserve assets? Should the report be required to
list and name other eligible financial institutions holding reserve
assets?
Question 64: Should the values and information in the monthly
report be required to be as of a particular date or time? Should the
monthly report be required to include both month end figures (for the
previous month) and some information that can be presented in real-time
(for example, the value of reserves or outstanding issuance value)? Are
there potential challenges in providing assurance over real-time
information presented in a monthly report?
Question 65: Is the requirement in proposed Sec. 350.4(h) to have
information disclosed in the previous month-end report examined by a
registered public accounting firm sufficiently clear? If not, what
additional clarity should the FDIC provide with respect to the
examination by a registered public accounting firm? Should the
examination be performed at the ``reasonable assurance'' level or at
some other standard? What additional standards, if any, should the FDIC
apply to ensure that the examination by the registered public
accounting firm is accurate and appropriate? Should the engagement
letter between the PPSI and the registered public accounting firm
require the registered public accounting firm to attest to whether the
PPSI is in compliance with the reserve asset requirements in proposed
Sec. 350.4, based on the information available to the registered
public accounting firm? What criteria should be used for the
examination by the registered public accounting firm? Would assertions
from the management of the PPSI regarding the information in the
issuer's weekly or monthly report be sufficient? If not, what other
criteria should be included?
Question 66: Should the FDIC add or remove specific data points
from Table 1 to proposed Sec. 350.4(g)--Monthly Composition Template?
Is the template appropriately configured to capture the data needed for
the required month-end reports? Should the FDIC provide instructions
for using the template or is the format of the template sufficiently
clear to complete without instructions? Is there a different format or
template that is better suited for this purpose than the proposed Table
1?
Question 67: Should the FDIC require PPSIs to monitor the financial
condition of eligible financial institutions, including IDIs, holding
reserve assets?
Question 68: Is the FDIC's approach to PPSIs that fail to meet
minimum reserve requirements in proposed Sec. 350.4(i) appropriate? If
the PPSI is unable to meet the requirements what other actions should
the FDIC consider directing the PPSI to perform? What measures would be
appropriate for a PPSI to take to meet their requirements in proposed
Sec. 350.4(a)?
Question 69: The FDIC proposes that all PPSIs maintain a written
contingency plan in proposed Sec. 350.4(j). Should the FDIC specify
what measures PPSIs should include in their contingency plans? If yes,
what measures would be appropriate to include?
Question 70: Should the FDIC require that PPSIs maintain processes
for the orderly redemptions of outstanding payment stablecoins in
exigent circumstances in proposed Sec. 350.4(k)? If so, what, if
anything, should be required?
6. Redemption (Proposed Sec. 350.5)
Section 350.5 of the proposed rule addresses redemption
requirements imposed by section 4(a)(1)(B) of the GENIUS Act (12 U.S.C.
5903(a)(1)(B)). Consistent with the Act, under proposed Sec. 350.5(a),
a PPSI must publicly disclose its redemption policy. The FDIC proposes
PPSIs also include additional information as described below.
Redemption Policy
Proposed Sec. 350.5(a)(1) requires PPSIs to disclose the timeframe
in which the PPSI will redeem payment stablecoins issued by the PPSI
for a fixed amount of monetary value and the timeframe under proposed
Sec. 350.5(b)(1).
Proposed Sec. 350.5(a)(2) would require the PPSI to include the
statement in proposed Sec. 350.5(b)(2), which requires that any
discretionary limitations on timely redemptions can only be imposed by
the FDIC.
Proposed Sec. 350.5(a)(3) would require the PPSI to explain when
the redemption period may be extended, as detailed in proposed Sec.
350.5(c).
In proposed Sec. 350.5(a)(4), the PPSI would be required to
provide a statement with clear instructions on how a payment stablecoin
holder can redeem a payment stablecoin, including a link to the website
where a payment stablecoin holder can redeem the payment stablecoin.
Under proposed Sec. 350.5(a)(5) the PPSI must disclose the minimum
number of payment stablecoins that it will redeem, but the minimum
number the PPSI will redeem may not be greater than one payment
stablecoin.
Redemption Policy Requirements
Proposed Sec. 350.5(b) requires a permitted payment stablecoin
redemption policy to provide clear and conspicuous procedures for
timely redemption of outstanding payment stablecoins. The FDIC is
proposing to define ``timely'' to mean that a PPSI shall redeem a
payment stablecoin no later than two business days following the date
of the requested redemption in proposed Sec. 350.5(b)(1). Under the
proposal, two business days would be the maximum amount of time a PPSI
could choose to redeem payment stablecoins, but a PPSI could choose a
shorter time period. The FDIC recognizes that the market may expect
redemptions to occur far more quickly than two business days. The FDIC
is requesting comment on this provision on whether the number of
business days is appropriate. In addition, consistent with the Act, the
FDIC is proposing that discretionary limitations on timely redemptions
can only be imposed by the FDIC.
Timeliness Extended in Certain Scenarios
Proposed Sec. 350.5(c) would provide that the PPSI must notify the
FDIC immediately if it receives redemption requests that exceed 10
percent of its outstanding issuance value within a 24-hour period,
which the FDIC defines as a ``significant redemption request.'' If a
PPSI receives redemption requests that exceed 10 percent over a time
period of less than 24 hours, the PPSI is required to provide immediate
notice to the FDIC

[[Page 18546]]

upon the 10 percent threshold being crossed, rather than waiting until
the end of the 24-hour period. Along with that notification, the PPSI
may request that the FDIC grant the PPSI approval to extend the
redemption time period beyond the required two business days. The FDIC
may also request the PPSI to provide a specific time period by which it
expects to be able to satisfy all of the redemption requests and, if
appropriate, whether it is at risk of potentially not satisfying
requirements in proposed Sec. 350.4(i) or plans to implement the
measures in proposed Sec. 350.4(j). The FDIC in its sole discretion
may choose to grant or deny the request for extension or grant a
different amount of time than one requested by the PPSI.
Disclosures and Fees Associated With Purchase and Redemptions
Proposed Sec. 350.5(d)(1) would provide that a PPSI must also
publicly, clearly, and conspicuously disclose in plain language and in
a format that is readily noticeable, readily understandable, and
segregated from other information: (i) the name of the PPSI that issues
the brand of payment stablecoin; (ii) that the PPSI is the entity that
is obligated to convert, redeem, or repurchase the payment stablecoin
for a fixed amount of monetary value; (iii) the link to the monthly
composition report of the relevant PPSI's reserves as required under
proposed Sec. 350.4(g); and (iv) all fees associated with purchasing
or redeeming payment stablecoins. The PPSI should make such disclosures
clear for each brand of payment stablecoin.
Proposed Sec. 350.5(d)(2) provides that a PPSI shall update the
disclosures in proposed Sec. 350.5(d)(1)(iv) if there are any
increases in the fees associated with purchasing or redeeming payment
stablecoins and provide at least seven calendar days' prior notice of
the change, including by securely delivering the notice to current
customers for whom the PPSI has contact information. Such disclosures
and any updates to its disclosures shall be published on the PPSI's
website, as described in proposed Sec. 350.5(d)(3).
Proposed Sec. 350.5(d)(4) provides that a PPSI shall include the
disclosures in proposed Sec. 350.5(d)(1) and any updates made with
respect to proposed Sec. 350.5(d)(2) in any customer agreements that
it provides.
Questions for Redemption Section (350.5)
The FDIC requests comment on the redemption requirements contained
in proposed Sec. 350.5, including the following:
Question 71: Has the FDIC appropriately defined ``timely'' for
purposes of redemption in proposed Sec. 350.5(b)(1) as not exceeding
two business days? If not, what may be a more appropriate timeframe?
For example, should the FDIC consider other timeframes ranging from
less than one calendar day to seven calendar days? Should ``timely'' be
defined to scale with the liquidity of specific required reserve assets
or with other factors? How should the definition of ``timely''
appropriately balance considerations of price stability and run risk?
Question 72: The proposed rule would require PPSIs to notify the
FDIC if they receive ``significant redemption requests,'' and, as part
of that notification, PPSIs may request that the FDIC extend the
redemption time beyond two days. The FDIC may choose in its sole
discretion to grant or deny the redemption request. Is this
notification requirement appropriate? Are there reasons why monitoring
for redemption requests exceeding 10 percent and immediately notifying
the FDIC would be operationally challenging? Should the FDIC provide in
the rule specific time periods that it could choose when granting
extensions to redemption requests? What metrics and data should the
FDIC review or request from the PPSI for its determination when
granting extensions to redemption requests?
Question 73: Should the FDIC require a permitted payment stablecoin
issuer to include in its redemption policy an automated, emergency
safety mechanism, commonly known as a ``circuit breaker,'' designed to
pause trading, redemptions, or minting when extreme price volatility or
a de-pegging event occurs?
Question 74: Are there limitations that the FDIC should impose
related to redemption fees, e.g., to reduce the risk of reserves assets
falling below outstanding payment stablecoin issuance value, discourage
run risk, or encourage price stability?
Question 75: Should the FDIC include specific additional provisions
regarding fee disclosures in the regulation text? If so, what
additional requirements should be included?
Question 76: Should the FDIC propose any other categories of
disclosures with respect to redemption requirements? Would potential
payment stablecoin holders have sufficient information to inform their
use of payment stablecoins?
Question 77: Should the FDIC impose any additional rules addressing
minimum amounts for redemption? For example, should the FDIC prohibit
any redemption minimums or set the minimum at some point other than one
payment stablecoin?
Question 78: Should the FDIC include in proposed Sec. 350.5(c) a
provision permitting a PPSI to make exceptions to its redemption policy
or refuse a redemption request in the event of fraud? Should a PPSI be
able to pause or refuse redemption in any other scenarios like a cyber-
attack or idiosyncratic market events? If the FDIC permits exceptions
or refusals to timely redemption for cases of fraud, cyber-attack or
market events, how should the FDIC design or limit the exception so
that the purpose of the timely redemption provision is not thwarted?
7. Risk Management (Proposed Sec. 350.6)
Section 4(a)(4)(A)(iv) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(iv)) provides that the FDIC must issue regulations
implementing appropriate operational, compliance, and information
technology risk management principles-based requirements and standards,
including Bank Secrecy Act and sanctions compliance standards, that are
tailored to the business model and risk profile of PPSIs and consistent
with applicable law. Accordingly, proposed Sec. 350.6 would implement
this provision and address: (i) general operational and managerial
standards; (ii) information technology and security; and (iii) the
anti-money laundering and economic sanctions compliance programs
certification requirement.
Internal Controls and Information Systems
The FDIC is proposing risk management requirements and standards in
proposed Sec. 350.6(a) that largely provide for the PPSI to design
commensurate with the nature, complexity, and risk of a PPSI's
activities. Many of the standards in proposed Sec. 350.6(a) are
adapted from relevant provisions of 12 CFR part 364, Appendix A, which
in turn implement 12 U.S.C. 1831p-1. The FDIC identified standards from
Appendix A of Part 364 that fit the requirements of section
4(a)(4)(A)(iii) or 4(a)(4)(A)(iv) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(iii), (iv)) and then adapted and tailored those standards
to the business models of PPSIs, as appropriate. The FDIC is also
seeking comment on whether to adopt more general risk management
standards, with less specificity than provided in the proposal, as
described below.
Proposed Sec. 350.6(a)(1) would require that a PPSI have internal
controls and

[[Page 18547]]

information systems that are appropriate for the size and complexity of
the PPSI and the nature, scope, and risk of its activities and that
provide for: (i) an organizational structure that establishes clear
lines of authority and responsibility for monitoring adherence to
established policies; (ii) effective risk assessment; (iii) timely and
accurate financial, operational, and regulatory reporting, including
with respect to the reports required under this part; (iv) adequate
procedures to monitor, safeguard, manage, and control assets, including
reserve assets; and (v) compliance with applicable laws and
regulations. Internal controls refer to the systems, policies,
procedures, and processes implemented by management to operate
effectively, safeguard assets, produce reliable financial records, and
ensure compliance with applicable laws and regulations. The internal
control standards are principles-based to account for the varying size,
complexity, and risks of PPSIs. For example, the procedures to monitor,
safeguard, and manage assets and to comply with applicable laws and
regulations would be expected to include measures to monitor and ensure
reserve requirements are met on a daily basis.
Internal Audit System
Proposed Sec. 350.6(a)(2) requires PPSIs to have an internal audit
system that is appropriate to the size and complexity of the PPSI and
the nature, scope, and risk of its activities and that provides for:
(i) adequate monitoring of the system of internal controls through an
internal audit function, or for a PPSI whose size, complexity or scope
of operations does not warrant a full scale internal audit function, a
system of independent reviews of key internal controls; (ii)
independence and objectivity; (iii) qualified persons; (iv) adequate
independent testing and review of internal controls and information
systems; (v) adequate documentation of tests and findings and any
corrective actions; and (vi) verification and review of management
actions to address deficiencies. Internal audit programs are expected
to include independent tests and reviews, as appropriate, with scopes
and activities that are informed by an assessment of the risk and
control environment. While the proposed Sec. 350.6(a)(2) requires that
internal audit functions be structured with independence and
objectivity to promote impartiality and avoid potential conflicts of
interest, the proposed rule would not mandate a specific organizational
structure or a standardized risk management approach. PPSIs will be
able to tailor the size and organizational structure of the internal
audit function, and any outsourcing arrangements, commensurate with the
size, complexity, and risk profile of its activities.
Interest Rate Exposure
Proposed Sec. 350.6(a)(3) addresses interest rate risk pursuant to
section 4(a)(4)(A)(iii) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(iii)) which requires the FDIC to establish interest rate
risk management standards among other things. The proposal would
require a PPSI to manage interest rate risk in a manner that is
appropriate to the size and complexity of the PPSI and the complexity
of its assets and liabilities. Although the reserve composition
requirements proposed under proposed Sec. 350.4(e) limit reserve
assets to those that generally have limited duration or no duration
(e.g., funds held as demand deposits), PPSIs should understand the
impact that changes in interest rates, particularly increases in
interest rates over short-time periods, may have on the fair value and
monetization of interest-sensitive reserve assets. Interest rate risk
management practices may also need to consider the impact that the
interest rate environment may have on the demand for payment
stablecoins and anticipated redemptions, given the prohibition of
paying interest to payment stablecoin holders solely in connection with
the holding, use, or retention of payment stablecoins under proposed
Sec. 350.3(b)(4).
Asset Growth
Proposed Sec. 350.6(a)(4) requires a PPSI's asset growth to be
commensurate with risk management and operational capabilities. The
proposal does not establish limits on asset growth rates or the overall
size of a PPSI but is intended to ensure the growth of assets is
managed prudently and that management maintains risk management and
operational capabilities.
Insider and Affiliate Transactions
Proposed Sec. 350.6(a)(5) addresses insider and affiliate
transactions and is intended to add to the protection of the assets and
resources of a PPSI from misuse for the benefit of insiders,
affiliates, or related entities. Under proposed Sec. 350.6(a)(5)(i), a
PPSI would be required to ensure that transactions between or among the
PPSI and insiders or affiliates (other than the parent IDI of which it
is a subsidiary): (A) do not pose significant risks of material
financial loss to the PPSI and (B) are conducted on terms that are the
same or at least as favorable to the PPSI as those prevailing at the
time for comparable transactions with or involving non-insiders or non-
affiliates (or in the absence of comparable transactions, are offered
on terms and under circumstances that, in good faith would be offered
to, or would apply to non-affiliates or non-insiders).
Oversee Service Provider Arrangements
Proposed Sec. 350.6(a)(6) would provide requirements for
overseeing third-party service provider arrangements. Specifically, a
PPSI must: (i) exercise appropriate due diligence in selecting its
service providers; (ii) require its service providers by contract to
implement appropriate measures designed to meet the requirements of
proposed part 350; and (iii) as appropriate, monitor its service
providers to confirm they have satisfied their obligations under
proposed part 350. Appropriate due diligence provides PPSIs with the
information needed to evaluate whether third-party service providers
can perform as expected and whether risks associated with the
relationship can be adequately identified, monitored, and controlled.
Further, properly structured contractual arrangements can help protect
PPSIs compliance with proposed part 350, and effective monitoring
practices enable management to determine if third-party service
providers are performing as expected.
Liquidity
Proposed Sec. 350.6(a)(7) establishes liquidity standards,
pursuant to section 4(a)(4)(A)(ii) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(ii)). The proposed rule would require a PPSI to: (i)
appropriately monitor and validate compliance with the requirements of
proposed Sec. 350.4 and (ii) manage liquidity risk in a manner that is
appropriate to the business model and risk profile of the PPSI.
Appropriate monitoring and management of liquidity is integral to the
operations of a PPSI and its ability to facilitate the timely
redemption of payment stablecoins and adhere to the requirements under
proposed Sec. 350.4.
Information Technology and Security
Section 4(a)(4)(A)(iv) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(iv)) directs the FDIC to establish appropriate
information technology risk management principles-based requirements
and standards that are tailored to a PPSI's business model and risk
profile, and consistent with applicable law. Proposed Sec. 350.6(b)
sets forth such principles-based information technology risk management
standards

[[Page 18548]]

for PPSIs consistent with the GENIUS Act. Proposed Sec. 350.6(b) would
require an FDIC-supervised PPSI to account for information technology
risks arising from activities authorized by the GENIUS Act, including
reliance on distributed ledger(s) or distributed ledger protocol(s) to
process and record payment stablecoin transactions. The standards in
proposed Sec. 350.6(b) are in addition to, and do not supersede, any
information technology risk management rules, standards, or guidelines
generally applicable to a subsidiary of an IDI, including the
Interagency Guidelines Establishing Information Security Standards
(Appendix B to Part 364), with which IDIs should already be familiar.
Information Technology and Security Program
Proposed Sec. 350.6(b)(1) provides that a PPSI must establish a
comprehensive framework that addresses information technology and
security-related risks. This framework shall include a structured
program for assessing and managing information technology and security
risks. A comprehensive information technology and security program will
facilitate the operational resilience of the PPSI, as well as mitigate
technology vulnerabilities and security threats that could disrupt
operations, including redemption of payment stablecoins. Furthermore,
maintenance of such a program by a PPSI is consistent with the approach
to risk management by regulated financial institutions generally.
Required Elements of Program
Under proposed Sec. 350.6(b)(2), a PPSI's information technology
and security program shall include: (i) an inventory and classification
of information technology assets, processes, and sensitivity of data;
(ii) an assessment of the information technology and security risks
associated with the issuance of stablecoins; (iii) controls supporting
and safeguarding the confidentiality, integrity, and availability of
information technology; (iv) controls for the development, maintenance,
and changes to information technology, including controls for testing,
storage, and deployment of the code base, including the smart contract
code; (v) evaluation, validation, and reporting processes to ensure
that information technology systems and controls, including smart
contracts, are operating as intended; (vi) periodic independent testing
of controls; and (vii) a comprehensive and effective program for the
identification, assessment, and response to operational and security
incidents. A comprehensive incident response program is essential for a
PPSI to respond in an effective and timely manner to an incident and
mitigate its impact.
Safe Handling of Digital Assets
Proposed Sec. 350.6(b)(3) provides that a PPSI shall develop,
implement, and maintain appropriate measures to ensure secure handling
of digital assets, including private key management, backup, and
recovery incorporating: (i) relevant technical, operational, strategic,
market, legal, and compliance considerations relating to each digital
asset and its underlying distributed ledger(s); and (ii) material
developments specifically related to supported digital assets and their
underlying distributed ledger(s).\23\ Maintaining appropriate measures
for private key management, backup, and recovery incorporating both
technical and operational factors and material on-chain developments is
essential to manage risk associated lost or stolen private keys and the
resulting loss or theft of assets. For example, depending on the
assessed risk, appropriate layered security could include controls such
as: (1) private key security via multi-party computation or multi-
signature technology to prevent single points of failure, alongside,
cold/offline storage for assets; (2) geographically dispersed,
encrypted, and regularly tested recovery keys; and (3) monitoring for
technical, legal, and material on-chain updates, such as blockchain
forks or smart contract vulnerabilities.
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\23\ If a PPSI holds digital assets on a customer's behalf, the
PPSI's risk management practices must reflect this activity.
Consistent with the July 14, 2025 Joint Statement on Risk Management
Considerations for Crypto-Asset Safekeeping, a PPSI holding digital
assets on a customer's behalf would be required to maintain risk
management practices, and information security practices in
particular, that reflect the PPSI's capacity to understand a complex
and evolving asset class, ability to ensure a strong control
environment, and appropriate contingency plans to address
unanticipated challenges in effectively providing services to
customers.
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Adjust the Program
Proposed Sec. 350.6(b)(4) would require that a PPSI monitor,
evaluate, and adjust, as appropriate, the information technology and
security program in light of any relevant changes in technology, the
sensitivity of its customer information, internal or external threats,
and the PPSI's own changing business arrangements, such as mergers and
acquisitions, alliances and joint ventures, third-party arrangements,
and changes to applicable information systems. Monitoring, evaluating,
and adjusting the information technology and security program
facilitates a risk-based approach, ensuring that information technology
defenses keep pace with rapidly evolving cyber threats, blockchain
technology advancements, and business changes like mergers and
acquisitions.
Notification of Unauthorized Access
Proposed Sec. 350.6(b)(5) would provide that a PPSI shall maintain
an appropriate program to notify its customers if the PPSI becomes
aware of an incident of unauthorized access to sensitive customer
information. The standards in proposed Sec. 350.6(b)(5) are in
addition to, and do not supersede, other notification standards
including the Interagency Guidelines Establishing Information Security
Standards (Appendix B to Part 364). A PPSI could, if it so chose,
satisfy the notification obligation under this section and other
notification requirements through a single, comprehensive notification
that met all relevant timing and content requirements. The program
shall require the delay of customer notice if an appropriate law
enforcement agency determines that notification will interfere with a
criminal investigation and provides the permitted payment stablecoin
issuer with a written request for the delay.
Information Technology Resilience
Proposed Sec. 350.6(b)(6) would provide that a PPSI's information
technology and security program shall include measures to reasonably
address continuity of operations and recovery of critical functions in
the face of disruptions, including by business impact analyses, testing
of vulnerability, and testing with critical service providers. The
operational resilience of a PPSI is challenged by a range of threats
and vulnerabilities, including ransomware, service provider outages, or
smart contract exploits. Such threats and vulnerabilities can cause
severe de-pegging, transaction delays, or loss of access to reserves.
Addressing operational resilience for payment stablecoin functions is
particularly challenging given the 24/7 nature of blockchain networks.
By implementing these business continuity measures, a PPSI can protect
itself from significant operational and financial impact and support
its customers' access to their digital assets, during market stress or
a cyber-attack, for example.

[[Page 18549]]

Anti-Money Laundering and Economic Sanctions Compliance Programs
Required Certification
Proposed Sec. 350.6(c) would implement requirements under section
5(i) of the GENIUS Act (12 U.S.C. 5904(i)) regarding the initial and
annual anti-money laundering and economic sanctions compliance programs
certifications. The proposed rule would require a PPSI to file with the
FDIC a certification that it has implemented anti-money laundering and
economic sanctions compliance programs that are reasonably designed to
prevent the PPSI from facilitating money laundering, in particular,
facilitating money laundering for cartels and organizations designated
as foreign terrorist organizations under section 219 of the Immigration
and Nationality Act (8 U.S.C. 1189) and the financing of terrorist
activities, as required by the GENIUS Act. The PPSI would be required
to file the initial certification within 180 days of being approved
under the application process and by April 1 of each year thereafter.
Given that the certification requirement would be ongoing and related
to a PPSI's compliance programs, the FDIC is proposing to include the
certification requirement within the risk management provisions in
subpart A of 12 CFR part 350.
Questions for Risk Management Section (Proposed Sec. 350.6)
The FDIC requests comment on the risk management requirements
contained in proposed Sec. 350.6, including the following:
Question 79: Should the FDIC streamline proposed Sec. 350.6(a) by
replacing it with a high-level requirement that the PPSI establish a
prudent risk management framework commensurate with its size,
complexity, and risk, including appropriate risk management frameworks
to manage liquidity and interest rate risk? If so, should it, also at a
higher level than proposed, specify that such risk management framework
include risk assessment, internal controls, organizational structure
with clear lines of authority and responsibility, and an internal audit
system?
Question 80: Are the risk management standards included in proposed
Sec. 350.6 appropriate? Are there any the FDIC should remove or
modify? Are there any risk management standards the FDIC should add?
Question 81: Are the liquidity risk management requirements in
proposed Sec. 350.6(a)(7) unnecessary, given the requirements that are
proposed in Sec. 350.4?
Question 82: Should the risk management standards under proposed
Sec. 350.6(a) provide for clear management roles, responsibilities,
and accountability? Should the standards include any requirements for
the PPSI's board of directors and senior management to maintain
appropriate competence and experience relevant to its activities? If
so, should any standards regarding competence and experience be similar
to the considerations set forth in section 5(c)(3) of the GENIUS Act?
Question 83: Should proposed Sec. 350.6(b) expressly address risks
relating to smart contracts, encryption, tokenized assets, or any other
technology or procedure? Are there standards which were included but
are not relevant to PPSIs?
Question 84: Are the restrictions on insider and affiliate
transactions in proposed Sec. 350.6(a)(5) appropriate? What
modifications, if any, are warranted? Should there be similar
restrictions applied to transactions with the parent IDI? Should there
be limitations on the ability of a parent IDI to ``bail out'' a
subsidiary PPSI during stress? What are the pros and cons of permitting
such actions? Should the requirements include any prescriptive
qualitative or quantitative limits? Should certain transactions require
approval by the board of directors?
Question 85: Should the FDIC require PPSIs to take any steps to
manage risks related to customer-facing operational issues, such as
with respect to fraud, unauthorized activity, customer disputes, or
service disruptions?
Question 86: To what extent are the requirements in proposed Sec.
350.6 consistent with other actions the FDIC is taking to make
supervision less process-focused and more focused on financial risks?
8. Audits, Reports, and Supervision (Proposed Sec. 350.7)
Section 6(a)(1) of the GENIUS Act (12 U.S.C. 5905(a)(1)) subjects
PPSIs to the supervision of the FDIC. Section 6(a)(3) of the GENIUS Act
(12 U.S.C. 5905(a)(3)) requires the FDIC to examine PPSI s to assess:
(i) the nature of the operations and the financial condition of the
PPSI; (ii)the financial, operational, technological, compliance, and
other risks associated with the PPSI that may pose a threat to the
safety and soundness of the PPSI or the stability of the financial
system of the United States; and (iii) the systems of the PPSI for
monitoring and controlling the risks. Pursuant to section 6(a)(4) of
the GENIUS Act (12 U.S.C. 5905(a)(4)), in supervising and examining a
PPSI, the FDIC shall, to the fullest extent possible, use existing
reports and other supervisory information, avoid duplication, and shall
only request examinations at a cadence and in a format that is similar
to that required for similarly situated entities regulated by the FDIC.
Examinations
Proposed Sec. 350.7(a) outlines that the FDIC will fulfill its
examination responsibilities, pursuant to Section 6(a)(3) of the GENIUS
Act (12 U.S.C. 5905(a)(3)), and will do so consistent with existing
examination timelines established for the parent IDI outlined in Sec.
337.12 of the FDIC Rules and Regulations, which generally require the
FDIC to conduct examinations at least once during each 12-month period,
but may be conducted at least once during each 18-month period if
certain conditions outlined in Sec. 337.12(b) are met by the parent
IDI. Consistent with section 6(a)(3) of the GENIUS Act (12 U.S.C.
5905(a)(3)), the scope of the examination will include: (i) an
assessment of the nature of the operations and financial condition of
the PPSI; (ii) the financial, operational, technological and other
risks associated within the permitted payment stablecoin; and (iii) the
systems (including practices) for monitoring and controlling those
risks. Such examinations will review compliance with laws and
regulations and assess overall safety and soundness.
Proposed Sec. 350.7(b) of the proposed rule requires that, upon
request by the FDIC, PPSIs must grant the FDIC prompt and complete
access to all officers, directors, employees, agents, and relevant
books, records, or documents of any type, including distributed
ledgers. The FDIC, through its examination authority over State
nonmember banks and State savings associations, has authority to make a
thorough examination.\24\ Sections 6(a)(1) and (3) of the GENIUS Act
(12 U.S.C. 5905(a)(1), (3)) give the FDIC similar authority to
supervise and examine PPSIs. Proposed Sec. 350.7(b) proposes that the
books and records of a PPSI include, but are not limited to,
information retained on distributed ledgers. Proposed Sec. 350.7(b)
applies the FDIC's supervisory and examination approach of access to
all books and employees to perform adequate examination and supervision
to PPSIs similarly to State nonmember banks and State savings
association. Additionally, proposed Sec. 350.7(c) clarifies that the
FDIC may conduct examinations either on-site or remotely.
---------------------------------------------------------------------------

\24\ 12 U.S.C. 1820(b), (c).

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[[Page 18550]]

Proposed Sec. 350.7(d) allows the FDIC to conduct examinations of
PPSIs as frequently as the FDIC deems necessary, including examinations
of a limited scope. This is consistent with the FDIC's statutory
authority under Section 6(a) of the GENIUS Act (12 U.S.C. 5905) and the
FDIC's supervisory authority over State nonmember banks and State
savings associations.
Recordkeeping
Proposed Sec. 350.7(e) provides that PPSIs must maintain a
complete set of books and records. Proposed Sec. 350.7(f) requires
PPSIs to develop and implement a records retention policy that ensures
the PPSI can demonstrate compliance with the GENIUS Act, this part, and
all applicable laws and regulations.
Reporting
Section 6(a)(2) of the GENIUS Act (12 U.S.C. 5905(a)(2)) requires
that each PPSI shall, upon request, submit to the FDIC a report on: (i)
the financial condition of the PPSI; (ii) the systems of the PPSI for
monitoring and controlling financial and operating risks; and (iii)
compliance by the PPSI (and any subsidiary thereof) with the GENIUS
Act.
Proposed Sec. 350.7(g) would require the PPSI to submit a
confidential weekly report to the FDIC, pursuant to the FDIC's
authorities in section 6(a)(2) of the GENIUS Act (12 U.S.C.
5905(a)(2)). The FDIC is seeking comment on what the FDIC should
require. The requirement could include information regarding required
reserves, issuance and redemption, and other relevant information. The
FDIC understands that this type of information is currently monitored
on an ongoing basis by existing PPSIs. Such reporting includes
additional or more frequent information beyond the composition report
that would be required in proposed Sec. 350.4(g) and the quarterly
financial condition reporting required in proposed Sec. 350.7(h) and
will allow the FDIC to more effectively supervise PPSIs to identify
changes in risk profile and financial condition between examinations,
in a timely manner, and to more efficiently supervise PPSIs by
facilitating risk scoping.
Proposed Sec. 350.7(h) would require PPSIs to submit quarterly
reports of financial condition to the FDIC in a standardized format to
be established by the FDIC, pursuant to the FDIC's authorities in
sections 6(a)(1) and (2) of the GENIUS Act (12 U.S.C. 5905(a)(1)-(2)).
The reports of financial condition would be required within 30 days of
the end of the prior quarter and will include an income statement,
balance sheet, reserves, statement of changes in equity, issuance
value, and assets under custody, among other things. These reports of
financial condition are intended to replicate, in a streamlined manner,
the quarterly Consolidated Reports of Condition and Income (commonly
referred to as the Call Report). Similar to the Call Report, the FDIC
intends to publish the information for public use and intends to
require the chief financial officer (or the individual performing an
equivalent function) of the PPSI to attest to the accuracy of the
filing. In addition, the FDIC would require directors and senior
management of the PPSI, other than the officer signing the chief
financial officer declaration, to attest to the accuracy of the report
of financial condition. Such reporting includes additional information
beyond the composition report that would be required in proposed Sec.
350.4(g) and the weekly reporting required in proposed Sec. 350.7(g)
and will allow the FDIC to more effectively supervise PPSIs to identify
changes in risk profile and financial condition between examinations,
in a timely manner, and to more efficiently supervise PPSIs by
facilitating risk scoping.
Proposed Sec. 350.7(i) would require the PPSI to submit reports on
the following to the FDIC, upon request, as required by section 6(a)(2)
of the GENIUS Act (12 U.S.C. 5905(a)(2)): (i) the financial condition
of the PPSI; (ii) the systems of the PPSI for monitoring and
controlling financial and operational risks; and (iii) compliance of
the PPSI and any subsidiary thereof with the GENIUS Act, and proposed
part 350.
Audits
Proposed Sec. 350.7(j) implements section 4(a)(10) of the GENIUS
Act (12 U.S.C. 5903(a)(10)), which requires a PPSI with more than
$50,000,000,000 in consolidated total outstanding issuance value, that
is not subject to the reporting requirements under section 13(a) or
15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)), to prepare an annual financial statement, obtain an audit of
that financial statement, and make the audited annual financial
statement publicly available and submit it to the FDIC. Under the
proposed rule, each PPSI with more than $50,000,000,000 in total
outstanding issuance value, that is not subject to the reporting
requirements under section 13(a) or 15(d) of the Securities and
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), is required to
prepare an annual financial statement, in accordance with GAAP, and
which shall include the disclosure of any related party transactions,
as defined by GAAP. Consistent with section 4(a)(10)(A)(ii) of the
GENIUS Act (12 U.S.C. 5903(a)(10)(A)(ii)), proposed Sec. 350.7(j)(1)
would require a registered public accounting firm to audit and report
on the annual financial statements. While section 4(a)(10)(A)(ii) of
the GENIUS Act (12 U.S.C. 5903(a)(10)(A)(ii)) requires that such audit
be performed in accordance with all applicable auditing standards
established by the Public Company Accounting Oversight Board (PCAOB),
proposed Sec. 350.7(j)(1) seeks to provide additional flexibility
relevant for non-public entities that would allow the audit to be
performed either in accordance with generally accepted auditing
standards or PCAOB auditing standards. Also, while Section
4(a)(10)(A)(i) of the GENIUS Act (12 U.S.C. 5903(a)(10)(A)(i)), is
limited to a PPSI that is not subject to the reporting requirements
under section 13(a) or 15(d) of the Securities and Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)), the FDIC interprets section
4(a)(10)(A)(iii) of the GENIUS Act (12 U.S.C. 5903(a)(10)(A)(iii)) to
mean those ``applicable auditing standards'' would apply if the PPSI
were subject to the reporting requirements under section 13(a) or 15(d)
of the Securities and Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)).
Also, the FDIC may at any time request that a registered public
accounting firm provide to the FDIC certain additional information or
documents relating to information provided by the PPSI. The registered
public accounting firm must retain the working papers related to the
audit of the PPSI and agree to provide copies of any working papers,
policies, and procedures relating to services performed in connection
with the audit required under section 4(a)(10)(A)(iii) of the GENIUS
Act (12 U.S.C. 5903(a)(10)(A)(iii)). Proposed Sec. 350.7(j)(2)(i)
would require a PPSI to make the audited financial statements publicly
available on the PPSI's website and submit them to the FDIC within 120
days after the end of its fiscal year. Proposed Sec. 350.7(j)(2)(ii)
would require a PPSI that is unable to file all or any portion of its
financial statement in a timely manner, to submit a written notice of
late filing to the FDIC: (1) before the filing date; (2) stating its
inability to timely file all, or specified portions, of its annual
financial statement and the reasons for such inability to timely file,
in reasonable detail; and (3) stating the date by which the financial
statement will be filed.

[[Page 18551]]

Questions for Audits, Reports and Supervision Section (Proposed Sec.
350.7)
The FDIC requests comment on the audits, reports, and supervision
provisions contained in proposed Sec. 350.7, including the following:
Question 87: Should the FDIC modify any aspects of the examination
requirements under proposed Sec. 350.7 for PPSIs? If so, what
examination requirements should be modified, and why?
Question 88: Proposed Sec. 350.7(d) provides the FDIC authority to
conduct examinations of any PPSI as frequently as the FDIC deems
necessary. Should the proposal include criteria that the FDIC should
consider when exercising its authority to conduct more frequent
examinations?
Question 89: Should the FDIC coordinate examinations with other
appropriate primary Federal payment stablecoin regulators in the event
a PPSI participates in a consortium of multiple entities supervised by
more than one primary Federal payment stablecoin regulator? If so,
should it utilize existing processes? If no, how should coordination be
structured?
Question 90: Should the FDIC modify any aspects of the proposed
reporting requirements under proposed Sec. 350.7 for PPSIs? If so,
what reporting requirements should be modified, and why? Are any
changes needed to the frequency or content of required reports?
Question 91: In proposed Sec. 350.7(g), the FDIC proposes to
collect confidential weekly data from PPSIs. The weekly data could
include some or all of the following: (i) outstanding issuance value;
(ii) reserve assets; (iii) redemptions; (iv) minting and issuance; (v)
exchanges on which the payment stablecoin trades; (vi) the largest
holders of the payment stablecoin; (vii) data concerning securities
held as reserve assets (including information regarding reserve assets'
CUSIPs, yield, weighted average maturity and weighted average life);
and (viii) information regarding repurchase agreements and reverse
repurchase agreements (including information regarding the
counterparty, clearing agency, collateral, and interest). Has the FDIC
identified the appropriate data and categories of information it would
collect from a PPSI on a weekly basis to understand the operations and
risks unique to its business model? If not, are there data listed above
that the FDIC should not request on a weekly basis and/or are there any
additional data beyond those listed above that the FDIC should collect
on a weekly basis? If the payment stablecoin trades on the secondary
market, should the FDIC collect secondary market transaction data
(e.g., trading price and volume), if applicable? Would it be too
burdensome for PPSIs to provide the proposed weekly data to the FDIC
electronically on a daily or real-time basis? Should the FDIC collect
additional data regarding the custody of reserve assets (or other
covered assets)? To what extent, if any, would a PPSI be anticipated to
track the information listed above on a regular or real-time basis for
its own use? To what extent would the proposed weekly and quarterly
reporting requirements tend to reduce the frequency at which the FDIC
would need to examine PPSIs? Are there other reporting requirements
that the FDIC could request that might reduce the frequency at which
the FDIC would need to examine PPSIs?
Question 92: In proposed Sec. 350.6(h), the FDIC requires all
PPSIs to submit a quarterly report of financial condition. Should the
FDIC tailor this requirement for PPSIs with assets below a certain
threshold? If so, what should the threshold be? For PPSIs under the
threshold, what changes to reporting frequency or information should be
considered? Should the FDIC consider any changes to the quarterly
report of financial condition required under proposed Sec. 350.6(h)
with respect to the filing of quarterly Call Reports by the PPSI's IDI
parent? Could such changes to the Call Report be utilized in lieu of
the report proposed in Sec. 350.6(h)? Should the quarterly report
under proposed Sec. 350.6(h) be attached to the Call Report as an
appendix as opposed to a separate filing? Why or why not? Are there
changes that should be made to the Call Report to limit duplicative
reporting requirements? Should reports required under proposed Sec.
350.6(h) and proposed part 350 more generally be coordinated and
developed on an interagency basis across the primary Federal payment
stablecoin regulators?
Question 93: Is the flexibility proposed in Sec. 350.7(j)(1) that
would allow the audit relevant for non-public entities to be performed
either in accordance with generally accepted auditing standards or
PCAOB auditing standards reasonable, and why or why not?
Question 94: How can the FDIC best minimize duplication of reports,
including for PPSIs subject to the audit requirement contained in
proposed Sec. 350.7(j)? Should the FDIC also include in the rule text
that it may at any time request that a registered public accounting
firm provide to the FDIC certain additional information or documents
relating to information provided by the PPSI and that the registered
public accounting firm must agree to provide copies of any working
papers, policies, and procedures relating to services in connection
with the audit required under section 4(a)(10)(A)(iii) of the GENIUS
Act (12 U.S.C. 5903(a)(10)(A)(iii))?
Question 95: The proposal does not include a requirement that a
person seeking to acquire control of a PPSI follow the requirements in
12 CFR part 303 subpart E, which requires an FDIC-supervised insured
State nonmember bank or insured State savings association to provide
prior notice to the FDIC prior to a change in control. Should the FDIC
require a person seeking to acquire control, as that term is defined in
12 CFR 303.81(c), of a PPSI to provide the FDIC prior notice of the
proposed acquisition pursuant to the requirements of 12 CFR part 303,
subpart E, as if the PPSI were a covered institution? Should a person
acquiring control of an FDIC-supervised PPSI through an acquisition be
required to notify the FDIC, or would section 5 of the GENIUS Act (12
U.S.C. 5904) and implementing regulations be adequate, such that a
person would be required to file an application with the appropriate
primary Federal payment stablecoin regulator rather than the FDIC?
9. Capital Requirements
Section 4(a)(4)(A)(i) of the GENIUS Act (12 U.S.C.
5903(a)(4)(A)(i)) requires the FDIC to establish capital requirements
for PPSIs that are tailored to the business model and risk profile of
PPSIs and not exceed requirements sufficient to ensure the ongoing
operations of PPSIs. Under the proposal, capital requirements would be
established based on an individualized evaluation of each PPSI.
Under the GENIUS Act, Congress established stringent reserve
requirements to serve as the key safeguard to ensure PPSIs can meet
redemptions throughout cycles. To the extent a PPSI limited its
activity most narrowly to payment stablecoin issuance and redemption,
the FDIC would expect its capital requirements to be relatively low.
However, to the extent a PPSI engaged in additional permitted
activities that presented additional risks, the FDIC would expect
capital requirements to play more of a role. Given the uncertainty at
this stage regarding the potential risks and activities, the FDIC is
proposing to require PPSIs to develop a process to assess and meet
their capital requirements, with the FDIC maintaining an ability to
require additional capital if warranted. The FDIC is also seeking
comment on

[[Page 18552]]

whether this is the right approach, or whether standardized capital
requirements would be a preferable approach.
Capital Elements (Proposed Sec. 350.8)
Under proposed Sec. 350.8, regulatory capital for PPSIs would
consist of two capital elements, common equity tier 1 capital and
additional tier 1 capital. These two elements are generally consistent
with the capital elements under 12 CFR part 324 for FDIC-supervised
IDIs. These elements consist of common equity, retained earnings, and
noncumulative perpetual preferred stock that meet certain terms
designed to ensure significant loss-absorbing capabilities. FDIC-
supervised IDIs that may seek to establish PPSI subsidiaries are
generally familiar with the long-standing criteria for capital
instruments to qualify under the existing 12 CFR part 324 framework.
Common equity tier 1 capital would consist of common stock
instruments (par value, if any, and related surplus), retained
earnings, and any accumulated other comprehensive income (AOCI), all as
reported under GAAP. Common stock instruments would need to meet
various proposed criteria, including being the most subordinated claim
on the PPSI's assets, being fully paid-in, having no maturity date, and
not being redeemable except with prior FDIC approval. Any dividends
must be fully discretionary, paid out only after fulfillment of any
other legal or contractual obligations. In addition, the holders of the
instruments must bear losses equally, proportionally, and
simultaneously with other holders of common stock instruments. As the
most subordinated tier of regulatory capital, common equity tier 1
exhibits the most loss absorbency, as any dividends are discretionary
and there is no expectation of redemption or repurchase of the
instrument, ensuring any operating funds generated can be used for any
other business need of the PPSI.
The FDIC also is proposing to include AOCI as a component of common
equity tier 1 capital. Unlike in 12 CFR part 324, the FDIC is not
proposing to permit any neutralization of AOCI. The FDIC permits
neutralization of components of AOCI under part 324 for most banks in
part to reduce regulatory capital volatility associated with changes in
value of available-for-sale fixed income securities due to changes in
interest rates. Changes in value due to interest rate movements are
generally larger for securities with longer remaining maturities. As
PPSIs can only hold as reserve assets securities with remaining
maturities of 93 days or less, the change in value of these securities
due to interest rate movements would be unlikely to generate material
amounts of AOCI.
Additional tier 1 capital would consist of instruments that meet a
different set of proposed criteria, generally consistent with
noncumulative perpetual preferred stock issuances that are classified
as equity under GAAP. Generally, these instruments would be
subordinated to all claims except those of common shareholders. The
instruments could not have a maturity date but may be callable after at
least 5 years with prior approval of the FDIC. In addition, the terms
of the instrument must provide for the payment of dividends only if and
when declared by the board of directors of the PPSI. This feature
provides the PPSI the ability to retain earnings and capital if needed.
These provisions all help ensure that the instrument provides
significant loss absorbency by limiting the PPSI's obligations to
holders.
The FDIC's capital framework for banks also permits tier 2 capital
elements, which mainly consist of tier 2 capital instruments, such as
certain types of subordinated debt instruments, and certain allowances
for credit losses. The FDIC is not proposing to adopt tier 2 capital
elements for PPSIs. Allowing subordinated debt obligations of a PPSI to
qualify as capital may incentivize a PPSI to take on material leverage
beyond its payment stablecoin liabilities, which may increase the risk
profile of the PPSI. Separately, as PPSIs generally would not be
providing loans or other credit to customers, they likely would not
have any allowance for credit losses.
The proposed rule would not require any specific deductions from
regulatory capital for PPSIs. The FDIC's current rules for FDIC-
supervised IDIs in 12 CFR part 324 require deductions from capital for
goodwill, other intangible assets, and certain other assets such as
mortgage servicing assets greater than a specified amount of capital,
generally due to their volatility and their inability to predictably
absorb losses. The FDIC does not believe such deductions are necessary
or appropriate for a PPSI. While a PPSI's goodwill and other intangible
assets may exhibit similar valuation volatility as those of an IDI, the
FDIC expects these risks to be sufficiently addressed though the
operational backstop, as well as through proposed requirements around
risk management, ongoing capital adequacy assessments, and reserve
asset composition. For example, a PPSI that holds a significant amount
of goodwill from the acquisition of another entity would be expected to
appropriately incorporate in its capital adequacy assessment the risk
that the goodwill may become impaired and reduce retained earnings. The
FDIC seeks comment, however, on whether any deductions should be
required. In addition, the FDIC expects that the minimum capital
requirement for a PPSI with material or volatile intangible assets
would typically be higher, both in the de novo period and on an ongoing
basis, than for a PPSI with only small amounts of intangible assets.
As an alternative, the FDIC is considering a simpler framework for
identifying qualifying capital instruments for PPSIs. Under this
alternative, any balance sheet account that is classified as equity
under GAAP would qualify as a capital element, including common stock,
retained earnings, accumulated other comprehensive income, and certain
preferred stock. This alternative could be easier for some PPSIs to
implement, as it is based on the GAAP definitions of equity without any
additional requirements. These benefits may be small, however, given
that the FDIC-supervised IDI that controls an FDIC-supervised PPSI
would already be familiar with the additional requirements for common
equity tier 1 capital and additional tier 1 capital. Moreover, those
additional requirements are designed to ensure that the equity
instruments are sufficiently loss absorbing and reduce the risk of loss
to payment stablecoin holders. For example, the additional proposed
requirements would help ensure a PPSI does not redeem equity
instruments with funds that are necessary to support the liquidity or
operations of the payment stablecoin and associated reserves, or make
loans to potential third-party shareholders to purchase stock, which
provides no loss absorbency. The FDIC is also seeking comment, however,
on whether a simpler framework, such as one that is based on tangible
equity or GAAP equity, would be more appropriate.
Minimum Capital And Operational Backstop (Proposed Sec. 350.9)
Under proposed Sec. 350.9, the FDIC would establish the initial
minimum capital requirement for the PPSI that would apply for a minimum
timeframe, generally three years. Under the proposed approach, the FDIC
would consider factors such as projected revenues and expenses, cash
burn rates, and expenditures necessary to implement the proposed
business plan and activities of the applicant. The FDIC may consider
various scenarios based

[[Page 18553]]

on projected payment stablecoin issuance volumes, planned composition
of reserves, and projected returns on those reserves in different
economic and market environments.
More specifically, under proposed Sec. 350.9(a), the initial
minimum capital requirement would apply during the ``de novo period,''
generally the three-year period following approval by the FDIC of the
PPSI to issue payment stablecoins under this proposed rule. This
timeframe may be extended or shortened by the FDIC. Generally, the FDIC
could extend the de novo period based on changes to the business model
or activities of the PPSI, excessive volatility in issuance and
redemptions of the payment stablecoin, unexpected operating losses,
weak earnings, poor risk management, or violations of the GENIUS Act or
part 350.
During the de novo period, the FDIC may adjust a PPSI's minimum
capital requirement based on a comparison of its actual operations to
the projections provided as part of the application. During this time,
and afterward, the PPSI also would be required to assess its own
capital adequacy and maintain an amount of capital that is commensurate
with its business model and risk profile, subject to review by the
FDIC.
The FDIC would consider the proposed PPSI's risk profile, business
strategy, future growth prospects, and cushions for unexpected losses.
As part of the approval process and during the de novo period, the FDIC
would consider factors including: (i) the composition, stability, and
direction of revenue; (ii) the level and composition of expenses; (iii)
the level of retained earnings; (iv) the quantity and direction of
strategic risk; (v) the quantity of transaction risk from delivery and
administration of asset management products and services; and (vi) the
impact of external factors, including economic conditions and evolving
technology.
The proposed rule also proposes a floor of $5 million on the
minimum capital requirement during the de novo period. This floor is
primarily intended to ensure that a PPSI has sufficient resources to
support initial operations, including resources sufficient to cover any
losses that are expected to occur early in the launch of a new payment
stablecoin.
In addition to the capital requirement established by the FDIC for
the de novo period, the proposed rule would also require a PPSI to
calculate a minimum capital requirement based on a thorough evaluation
of the risks associated with its business model and risk profile. This
amount would be based on estimates submitted during the application
phase, and after approval, this amount must incorporate the operating
history of the PPSI and losses experienced from all sources, including,
but not limited to, operational risk. The FDIC would review and monitor
the amount of capital held by the PPSI, and the process employed by the
PPSI to determine its minimum capital requirement, as part of the
examination process. The amount of capital held by the PPSI must
appropriately incorporate the operating history and risk profile of the
PPSI. As described below, if the FDIC concludes that the minimum
capital requirement established by the PPSI was inappropriate, the FDIC
would have the authority to establish an additional capital requirement
under proposed Sec. 350.10.
The GENIUS Act requires that capital requirements for PPSIs be
tailored to the business model and risk profile of PPSIs. In light of
the reserve asset composition and diversification requirements for
PPSIs, as well as the amendments to the U.S. Bankruptcy Code made by
the GENIUS Act that are designed such that payment stablecoins holders
are paid on their claims against an insolvent PPSI, the FDIC expects
that minimum capital requirements for a PPSI with a business model that
is narrowly focused on the issuance and redemption of payment
stablecoins and with a correspondingly simple balance sheet will be
relatively low. Conversely, if a PPSI held assets on its balance sheet
outside of reserve assets that presented material risks the FDIC would
expect higher capital requirements.
Although the FDIC is not currently proposing to establish any
specific minimum capital amount or ratio by regulation, or a framework
for determining a minimum capital requirement, the FDIC is seeking
comment on whether to implement such a framework for determining more
objective capital requirements.
Under proposed Sec. 350.9(b), the FDIC is proposing that a PPSI
hold an operational backstop comprised of a designated pool of highly
liquid assets to maintain the ongoing operations of the PPSI during a
business disruption. The operational backstop would be independent of
the de novo and ongoing capital requirements, and the assets that
comprise the backstop would be separate from assets held as reserve
assets. The purpose of the proposed operational backstop would be to
help ensure that, during a business disruption that impacts operations
of a PPSI, the PPSI has on hand a pool of liquid assets, separate from
reserve assets, that can be used to meet short term liquidity needs,
stabilize the PPSI after the disruption, and continue or resume normal
operations. The operational backstop would be calculated based on the
actual total expenses of the PPSI over the past 12 months. These
expenses, including for utilities, data processing, and salaries, are
highly correlated with a PPSI's ability to maintain ongoing operations
for the benefit of payment stablecoin holders and stabilize from a
business disruption. At a minimum, the operational backstop could
provide a basis for a more orderly runway for a PPSI to develop and
execute potential stabilization actions or prepare for resolution. The
amount of the operational backstop would be calculated each quarter,
based on a PPSI's total expenses as reported in the four most recent
quarterly reports filed under proposed Sec. 350.7 of the proposed
rule. During the de novo period, the initial requirement would be based
on reasonable expense projections and adjusted each quarter based on
actual amounts for that quarter.
The operational backstop amount would need to be held as readily
available liquid assets to ensure that funds are available quickly
during a business disruption. Specifically, this amount would need to
be held in U.S. currency directly or at a Federal Reserve Bank, as
demand deposits at an IDI, or in Treasury bills, notes or bonds that
meet the requirements to qualify as reserve assets. The operational
backstop assets would need to be separately identified in the reports
filed under proposed Sec. 350.7, and in any other financial statements
of the PPSI, from any reserve assets required to support the payment
stablecoin and any other assets of the PPSI on any reports filed under
proposed Sec. 350.7. The proposed minimum capital amount, the capital
held by the PPSI, and the operational backstop would be calculated as
of the last day of each quarter and disclosed in the reports required
under proposed Sec. 350.7 of the proposed rule. Under proposed Sec.
350.9(c), if a PPSI does not meet the minimum capital requirement or
have sufficient liquid assets to meet the operational backstop at the
end of a quarter, it must notify the FDIC in writing and provide a
description of the measures it intends to take to remediate the
shortfall. If the FDIC determines that such measures are not viable,
the FDIC may direct a PPSI to take other remediative measures,
including directing the PPSI to issue additional capital instruments or
acquire additional liquid assets for the operational backstop, suspend
or reduce

[[Page 18554]]

issuance of payment stablecoins, execute an orderly redemption of all
outstanding payment stablecoins, or take other actions.
Individual Additional Capital or Backstop Requirement (Proposed Sec.
350.10)
Proposed Sec. 350.10 addresses individual additional capital or
operational backstop requirements. As permitted by section
4(a)(4)(B)(i) of the GENIUS Act (12 U.S.C. 5903(a)(4)(B)(i)), to
address cases where the PPSI's internal capital adequacy assessment is
deficient in addressing the capital needs of the PPSI, or where the
PPSI's available liquid assets are insufficient to ensure ongoing
operations, the FDIC is proposing a process to impose on a PPSI an
individual additional capital or operational backstop requirement.
Proposed Sec. 350.10(a) includes a list of examples intended to
illustrate when the FDIC may consider imposing an individual additional
capital or operational backstop requirement. These include when there
has been a significant increase in operational risks, excessive
volatility in payment stablecoin issuance or redemptions, or additional
risks that the PPSI is not appropriately reflecting in its ongoing
capital adequacy assessment framework. While an individual capital or
backstop requirement would be based on the facts of each individual
case, proposed Sec. 350.10(b) would describe the factors that the FDIC
may consider.
Under proposed Sec. 350.10(c), the FDIC would notify the PPSI of
the proposed individual additional capital or backstop requirement,
including a justification for that requirement and a target achievement
date. The board of directors and management of the PPSI generally would
have 30 days to respond to that notice. The FDIC may change this time
period, as appropriate, based on the condition of the PPSI. For
example, the time period may be shortened due to the severity of the
underlying issues and need for additional capital or backstop. After
the response period, the FDIC would issue a final decision establishing
an individual additional capital or backstop requirement for that PPSI,
which would remain in effect until modified or rescinded by the FDIC.
The decision may require the PPSI to develop and submit to the FDIC,
within a specified time period, an acceptable plan to reach the
additional capital or backstop requirement established for the PPSI.
If, after the FDIC renders its decision, there is a significant change
in the circumstances that materially affects the PPSI's capital
adequacy or its ability to reach the required capital or backstop
requirement, the PPSI may request, or the FDIC may propose to the PPSI,
a change in the additional capital or backstop requirement for the
PPSI, the date when the minimum must be achieved, or the PPSI's plan
(if applicable). The FDIC may decline to consider proposals that are
not based on a significant change in circumstances or that are
repetitive or frivolous. Pending a decision on reconsideration, the
FDIC's original decision and any plan required under that decision
shall continue in full force and effect.
Proposed Adjustment to the Bank Capital Rule (Proposed Amendments to 12
CFR 324)
Section 4(a)(4)(C)(iii) of the GENIUS Act (12 U.S.C.
5903(a)(4)(C)(iii)) specifies that the leverage and risk-based capital
requirements imposed by an appropriate Federal banking agency (as
defined in 12 U.S.C. 1813(q)) on a consolidated basis on an IDI or
depository institution holding company that includes a PPSI as a
consolidated subsidiary cannot require such an IDI or depository
institution holding company to hold any amount of regulatory capital
with respect to such PPSI subsidiary and its assets and operations in
excess of the capital that such PPSI must maintain under the capital
regulations issued pursuant to the GENIUS Act.
The FDIC is the appropriate Federal banking agency for FDIC-
supervised IDIs, and the FDIC's regulations impose consolidated
leverage and risk-based capital requirements on FDIC-supervised IDIs
(capital rule).\25\ To comply with section 4(a)(4)(C)(iii) of the
GENIUS Act, the FDIC is proposing to amend section 324.22 of the
capital rule, which sets forth certain adjustments and deductions to
the amount of an FDIC-supervised IDI's regulatory capital, to specify
the balance sheet adjustments that an FDIC-supervised IDI with a
consolidated PPSI subsidiary would be required to make for purposes of
the capital rule. First, an FDIC-supervised IDI that consolidates a
PPSI in accordance with regulatory reporting instructions and under
GAAP would be required to deconsolidate the investment in the PPSI for
regulatory capital purposes. Second, the FDIC-supervised IDI would be
required to deduct any interest in the retained earnings of the PPSI
from the FDIC-supervised IDI's common equity tier 1 capital. This
amount would also be deducted from the asset reflecting the FDIC-
supervised IDI's investment in the PPSI for risk-based and leverage
capital calculations. This interest reflects the FDIC-supervised IDI's
share of retained earnings of the PPSI that have not been paid out as
dividends, and the deduction ensures that the same amount would not
count as capital at both the PPSI and its parent FDIC-supervised IDI.
Once earnings from the PPSI are paid as dividends to the parent FDIC-
supervised IDI, those funds are available for general uses of the
parent FDIC-supervised IDI and no longer count as capital of the PPSI.
Finally, any remaining assets of the FDIC-supervised IDI associated
with the PPSI (after deducting its share of retained earnings), such as
investments in or intercompany receivables from a PPSI, would be
excluded when calculating the FDIC-supervised IDI's standardized total
risk-weighted assets, advanced approaches risk-weighted assets,\26\
average total consolidated assets, and total leverage exposure, as
applicable. To the extent that a subsidiary PPSI incurs net losses,
there would be no adjustment to increase its parent FDIC-supervised
IDI's assets or retained earnings to offset those losses, so as to not
overstate the resources and financial condition of the parent FDIC-
supervised IDI.
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\25\ See 12 CFR part 324.
\26\ The FDIC, OCC and FRB issued the Regulatory Capital Rule:
Category I and II Banking Organizations, Banking Organizations with
Significant Trading Activity, and Optional Adoption for Other
Banking Organizations proposal that would replace the advanced
approaches with the expanded risk-based approach.
---------------------------------------------------------------------------

The FDIC is also proposing to make conforming amendments to the
definition of total assets in 12 CFR 324.401(g).
As proposed, this deconsolidation and deduction approach would
ensure that an FDIC-supervised IDI that consolidates a PPSI under GAAP
would not be required to hold any amount of regulatory capital with
respect to such PPSI subsidiary and its assets and operations in excess
of the capital that such PPSI must maintain under the capital
requirements issued pursuant to the GENIUS Act. This approach would
also ensure that any undistributed retained earnings of the PPSI are
not double-counted as capital that can be used by the parent FDIC-
supervised IDI.
However, because the proposed approach would not deduct the full
amount of an FDIC-supervised IDI's investment in its PPSI subsidiary,
there may be incentives for an FDIC-supervised IDI to contribute more
capital to its PPSI subsidiary (in the form of permissible reserve
assets for PPSIs) than necessary to prudently operate the PPSI
subsidiary as a mechanism to inflate the capital ratios of the FDIC-
supervised IDI. The FDIC

[[Page 18555]]

recognizes that an appropriately capitalized PPSI will have a positive
capital position, and the FDIC does not intend to discourage a PPSI
from maintaining reserve assets and other liquid assets in amounts that
a PPSI believes are prudent given the PPSI's outstanding balance of
payment stablecoins and other potential risks of the PPSI. In contrast,
contributions of assets by an FDIC-supervised IDI to its PPSI
subsidiary that are disproportionate to the PPSI's outstanding payment
stablecoins or are not readily usable by the PPSI subsidiary for its
operations, or the recognition of significant intangible assets by the
PPSI subsidiary, as examples, may be indicative of balance sheet
management activities intended to improve the FDIC-supervised IDI's
regulatory capital position rather than serve the operations and/or
business needs of the PPSI.
Consequently, the FDIC intends, through its supervision of FDIC-
supervised IDIs and PPSIs, to monitor the balance sheet management
activities of FDIC-supervised IDIs and their PPSI subsidiaries to
ensure that an FDIC-supervised IDI does not use the balance sheet of
its PPSI subsidiary to inappropriately inflate the regulatory capital
ratios of the FDIC-supervised IDI. In this regard, the FDIC maintains
the authority under 12 CFR 324(d)(1) to require an FDIC-supervised IDI
to hold an amount of regulatory capital greater than otherwise required
under 12 CFR part 324 if the capital requirement under part 324 is not
commensurate with the FDIC-supervised IDI's credit, market,
operational, or other risks. If the FDIC were to determine that
contributions of assets by an FDIC-supervised IDI to its PPSI
subsidiary appear indicative of an intent to inflate the capital ratios
of the IDI rather than serve the operations and/or business needs of
the PPSI, the FDIC would expect to require the FDIC-supervised IDI to
hold an additional amount of regulatory capital commensurate with such
disproportionate contribution of assets.
Questions for Capital Section (Proposed Sec. Sec. 350.8, 350.9,
350.10)
The FDIC requests comment on the capital requirements contained in
proposed Sec. Sec. 350.8, 350.9, and 350.10, including the following:
Question 96: Should the FDIC establish standardized capital
requirements (i.e., establish minimum risk-based capital and/or
leverage requirements) for PPSIs? If so, how should such capital
requirements be established and calibrated? If not, should the FDIC
make any modifications to the proposed capital requirements?
Question 97: Should the FDIC provide additional clarity around its
expectations for calibration of capital requirements based on the risks
and activities of PPSIs?
Question 98: Are the proposed requirements for capital elements
appropriate and sufficiently clear? Should the FDIC consider permitting
tier 2 capital in the form of subordinated debt, similar to the
permitted capital element under Part 324 for FDIC-supervised IDIs? If
so, in what circumstances would it be likely for an FDIC-supervised
PPSI to issue tier 2 capital instruments? Should the FDIC consider
establishing limits on how much capital of each tier should be required
or allowed? Alternately, should the FDIC adopt a simpler measure of
capital, such as anything that qualifies as equity under GAAP, instead
of importing the bank framework for capital instruments? Should the
FDIC use tangible equity (retained earnings, stock, and preferred
stock, net of tangible assets) as the measure of capital for a PPSI?
Question 99: Should the FDIC require deductions from regulatory
capital for goodwill, certain deferred tax assets, or other illiquid or
intangible assets, recognizing that these assets may not provide
sufficient loss absorbency during a business disruption, and may
experience volatility in value or write-downs that could deplete
retained earnings? Please provide any data supporting your views.
Question 100: Are the proposed components and determination of the
minimum capital and backstop requirements appropriate for PPSIs? Which
alternatives, if any, should the FDIC consider and why? Should the
requirements include any adjustments in recognition of newly acquired
or divested businesses, or any other adjustments when calculating total
expenses for purposes of the proposed backstop? Please provide any data
supporting your views.
Question 101: Is the $5 million minimum capital requirement for a
de novo PPSI appropriate?
Question 102: Should the FDIC incorporate a capital requirement
based on the outstanding issuance value or amount and type of reserve
assets, including variations of any of the proposals discussed above?
For example, should the FDIC impose a minimum capital requirement based
on a set percentage of outstanding issuance value, as discussed above
in this supplementary information? If so, are the minimum capital
requirements and thresholds discussed above appropriately calibrated?
Please provide any data supporting your views.
Question 103: A PPSI and holders of payment stablecoins issued by a
PPSI could be exposed to losses through the price risk, credit risk,
and interest rate risk of the PPSI's portfolio of reserve assets, as
well as through any operational risks to which the PPSI is exposed.
Should the FDIC adopt a capital requirement based on price risk, credit
risk, operational risk, or interest rate risk, including variations on
any of the proposals discussed above? Please provide any data
supporting your views. Should the FDIC impose a charge for credit risk,
such as a capital charge for uninsured deposits? Should the FDIC impose
a minimum operational risk capital charge that scales with the size of
the PPSI, as discussed above?
Question 104: Should the FDIC adopt a capital requirement expressly
designed to address costs of litigation, legal risk, or legal costs
during insolvency that a PPSI may face? If so, how should such a
requirement be calibrated?
Question 105: Should the capital and operational backstop
requirements be calculated based as of the last day of a given quarter,
as proposed? Or should the amount instead be calculated across some
other period of time, such as an average on a monthly, bi-monthly,
biannually, or yearly basis?
Question 106: Is the timing for the PPSI to meet capital and
operational backstop requirements appropriate? Should consequences for
falling below minimum requirements kick in sooner than the end of the
quarter?
Question 107: Are the proposed criteria for imposing an individual
additional capital or operational backstop requirements appropriate and
sufficiently clear? What modifications, if any, are appropriate? Are
there modifications to the process that are appropriate? Is the process
too long or too short?
Question 108: With respect to the assets eligible for the
operational backstop, the proposal would allow demand deposits at an
IDI to qualify. Should this be limited to only fully insured deposits?
Question 109: Does the proposed deconsolidation and deduction
approach appropriately balance the FDIC's statutory obligations under
the GENIUS Act with other statutory requirements to establish risk-
based and leverage capital requirements for FDIC-supervised IDIs? If
not, what changes or alternatives should the FDIC consider?

[[Page 18556]]

Question 110: Instead of the proposed approach, should the FDIC
require an FDIC-supervised IDI that includes a consolidated PPSI
subsidiary to treat a PPSI subsidiary for regulatory capital purposes
in the same manner that it is required to treat a financial subsidiary?
This would require the FDIC-supervised IDI to deconsolidate the assets
and liabilities of the PPSI subsidiary, exclude the amount of its
investment in the PPSI subsidiary from its total risk-weighted assets,
average total consolidated assets, and other applicable exposure
measures, and deduct the amount of its investment in the PPSI
subsidiary from its common equity tier 1 capital. On the one hand, this
approach would ensure that the FDIC-supervised IDI's investment in its
PPSI subsidiary does not increase the capital of the FDIC-supervised
IDI, thus avoiding any double counting of capital. On the other hand,
this approach could, at least for some period of time upon establishing
a PPSI subsidiary, cause the regulatory capital ratios of an FDIC-
supervised IDI that includes a consolidated PPSI subsidiary to be lower
than the regulatory capital ratios of an otherwise similar FDIC-
supervised IDI that did not establish a consolidated PPSI subsidiary,
thus (relative to the proposal) potentially increasing the cost of
establishing a PPSI subsidiary. What would be the advantages and
disadvantages of this approach? If the FDIC were to adopt such an
approach, should the FDIC consider calibrating the PPSI capital
requirement as a percentage of the PPSI's total assets or other
denominator, rather than the proposal's fixed minimum capital
requirement for PPSIs? Alternatively, should the FDIC consider applying
the existing treatment for financial subsidiaries to larger
institutions, while retaining the proposed approach for smaller
institutions, given the proposal's fixed minimum capital requirement
for PPSIs? Are there other alternatives the FDIC should consider?
Question 111: Does the proposed approach appropriately reflect loss
absorbing capacity of FDIC-supervised IDIs and PPSI subsidiaries?
Question 112: To what extent do commenters agree with the FDIC's
characterization of the potential that an FDIC-supervised IDI could
utilize a subsidiary PPSI under the proposed approach to inflate the
capital ratios of the parent IDI? What are the advantages and
disadvantages of the supervisory actions the FDIC would expect to take
upon determining that the contribution of assets by an FDIC-supervised
IDI to its PPSI subsidiary appeared indicative of an intent to improve
the regulatory capital position of the IDI rather than serve the
operations and/or business needs of the PPSI? Are there other measures
the FDIC could adopt to address such concerns? Would treating PPSI
subsidiaries as financial subsidiaries for regulatory capital purposes,
as discussed above, be a preferable approach?

B. Subpart B--Requirements for FDIC-Supervised Entities Engaged in the
Custody or Safekeeping of Payment Stablecoin Reserves and Collateral

The FDIC proposes to establish subpart B to implement the custodial
and safekeeping requirements outlined in section 10 of the GENIUS Act
(12 U.S.C. 5909) with respect to FDIC-supervised entities.
1. Purpose and Scope (Proposed Sec. 350.100)
Proposed Sec. 350.100 sets forth the purpose and scope of the
custodial and safekeeping regulations in subpart B. The subpart B
requirements would apply to persons subject to supervision and
regulation by the FDIC, including insured State nonmember banks,
insured State-licensed branches of foreign banks, insured State savings
associations, and PPSIs, for which the FDIC is the primary Federal
banking agency or primary Federal payment stablecoin regulator, that
are engaged in the business of providing custodial or safekeeping
services for payment stablecoin reserves, payment stablecoins used as
collateral, or private keys used to issue payment stablecoins pursuant
to sections 4(a)(7)(A)(iv) and 10 of the GENIUS Act (12 U.S.C.
5903(a)(7)(A)(iv) and 5909).
Furthermore, proposed Sec. 350.100 would provide that subpart B
applies to the custody and safekeeping of any other digital asset by a
PPSI authorized by the FDIC. The provision also clarifies that proposed
subpart B requirements would apply in addition to any other applicable
law regarding the provision of custody and safekeeping services of
payment stablecoin reserves, payment stablecoins used as collateral, or
private keys, and any other digital asset.
Lastly, proposed Sec. 350.100 would provide that subpart B
requirements would not apply solely on the basis of engaging in the
business of providing hardware or software to facilitate a customer's
self-custody or safekeeping of payment stablecoins or private keys.
This exclusion is consistent with section 10(e) of the GENIUS Act (12
U.S.C. 5909(e)).
2. Definitions (Proposed Sec. 350.101)
For purposes of proposed subpart B, the FDIC would include the
following definitions in proposed Sec. 350.101.
Applicable law. The proposed rule would define ``applicable law''
to mean the law of a state or other jurisdiction governing a
custodian's custody relationships, any applicable Federal law governing
those relationships, and any applicable court order.
Custody agreement. The proposed rule would define ``custody
agreement'' to mean a legally binding contractual agreement between a
customer, as the principal, and the custodian, as the agent, that
establishes the custodian's duties and responsibilities in providing
custody, safekeeping and ancillary services to the customer.
Customer. The proposed rule would define ``customer'' to mean a
person for whom or on whose behalf a custodian receives, acquires, or
holds payment stablecoin reserves, payment stablecoins used as
collateral, private keys, cash, and other property received in the
course of the provision of custody services for such assets. This
definition is consistent with the description of the term ``customer''
used in section 10(b) of the GENIUS Act (12 U.S.C. 5909(b)). The
proposed ``customer'' definition under part 350 subpart B only applies
to part 350, subpart B.\27\
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\27\ The proposed ``customer'' definition under part 350,
subpart B is not intended to affect any GENIUS Act requirements
promulgated to implement the GENIUS Act's direction to treat PPSIs
as financial institutions for purposes of the Bank Secrecy Act and
to apply Federal law applicable to a financial institution located
in the United States relating to the prevention of money laundering,
including customer identification program or customer due diligence
requirements applicable to PPSIs. See 12 U.S.C. 5093(a)(5)(A).
---------------------------------------------------------------------------

Custodian. The proposed rule would define ``custodian'' to mean an
FDIC-supervised person, including an insured State nonmember bank,
insured State-licensed branch of a foreign bank, insured State savings
associations, or a PPSI. This proposed definition specifies the FDIC-
supervised entities that are permitted to provide custodial and
safekeeping services as provided under section 10(a) of the GENIUS Act
(12 U.S.C. 5909(a)).
Digital wallet. The proposed rule would define ``digital wallet''
to mean a software program or hardware device that stores and manages
the private keys associated with a particular unit of a digital asset.
Person. The proposed rule would define ``person'' to mirror section
2(24) of the GENIUS Act (12 U.S.C. 5901(24)), and the term would mean
an individual, partnership, company, corporation,

[[Page 18557]]

association, trust, estate, cooperative organization, or other business
entity, incorporated or unincorporated.
Permitted payment stablecoin issuer. The proposed rule would define
``permitted payment stablecoin issuer'' to have the meaning given that
term in section 2(23) of the GENIUS Act (12 U.S.C. 5901(23)).
Private keys. The proposed rule would define ``private keys'' to
mean the unique alphanumeric sequence that allows for a transfer of a
particular unit of a digital asset using a distributed ledger.
Sub-custodian. The proposed rule would define ``sub-custodian'' to
mean a person that provides custody and safekeeping services to a
custodian, including through a digital wallet for which such person
controls the associated private keys, with respect to assets of a
customer, for which the custodian otherwise serves as an agent under
this subpart.
3. Severability (Proposed Sec. 350.102)
Similar to subpart A, subpart B would include a severability clause
in proposed Sec. 350.102 that would provide that the provisions of
subpart B are separate and severable from one another. In the event a
court stays a particular provision of this rule or determines any
provision is invalid, the FDIC intends that the remaining provisions
shall continue in effect.
4. Custodial and Safekeeping Requirements (Proposed Sec. 350.103)
Proposed Sec. 350.103(a) would implement requirements in section
10(b)(1) of the GENIUS Act (12 U.S.C. 5909(b)(1)) and would require a
custodian to treat payment stablecoin reserves, payment stablecoins
used as collateral, private keys, cash, and other property received,
acquired, or held in custody for or on behalf of a customer as
belonging to such customer and not as the property of the custodian.
Proposed Sec. 350.103(b) would require a custodian to take
appropriate steps to protect the customer's payment stablecoin
reserves, payment stablecoins used as collateral, private keys, cash,
and other property from the claims of the custodian's creditors and any
sub-custodian's creditors. Under the proposed rule, these measures must
be commensurate with the custodian's size, complexity, and risk profile
and with the nature of the applicable assets for which it provides
custodial or safekeeping services including through adopting,
implementing, and maintaining written policies, procedures, and
internal controls that are adequate to comply with applicable law. The
FDIC believes this proposed Sec. 350.103(b) would be consistent with
section 10(b)(2) of the GENIUS Act (12 U.S.C. 5909(b)(2)), which
requires a custodian to take appropriate steps to protect the
customer's property from the claims of the custodian's creditors.
Moreover, the requirements in proposed Sec. 350.103(b) incorporate
appropriate risk management principles that are consistent with safe
and sound practices expected for institutions providing custodial and
safekeeping services.\28\
---------------------------------------------------------------------------

\28\ See e.g., Joint Statement on Crypto-Asset Safekeeping by
Banking Organizations (July 14, 2025), <a href="https://www.fdic.gov/interagency-statement-crypto-asset-safekeeping.pdf">https://www.fdic.gov/interagency-statement-crypto-asset-safekeeping.pdf</a>.
---------------------------------------------------------------------------

Section 350.103(c)(1) of the proposed rule would require a
custodian to maintain possession or control of the customer's property
that is held directly, including in a digital wallet for which the
custodian controls the associated private keys. The proposed rule would
further provide that a custodian could maintain the customer's property
through the use of a sub-custodian if consistent with applicable law,
provided the custodian maintains adequate safeguards and internal
controls reasonably designed to provide the custodian with oversight of
such sub-custodian's compliance with the requirements of subpart B.
With respect to any payment stablecoin or tokenized reserve asset,
proposed Sec. 350.103(c)(2) provides that a custodian or sub-custodian
maintains control if it can it can reasonably demonstrate, consistent
with the standard of care established by applicable law that no other
party, including the customer or any affiliate of the custodian, can
control or transfer the payment stablecoin or payment stablecoin
reserve in the form of an asset in tokenized form using a distributed
ledger without the affirmative consent of the custodian or sub-
custodian, as applicable. The custodian must have technical safeguards
to prevent unauthorized access by its own personnel. This provision
would be consistent with past interagency guidance regarding control of
crypto assets for purposes of safekeeping \29\ and necessary to protect
a customer's assets.
---------------------------------------------------------------------------

\29\ See e.g., id.
---------------------------------------------------------------------------

5. Commingling Prohibition and Limited Exceptions (Proposed Sec.
350.104)
Section 350.104(a) of the proposed rule would provide that a
custodian shall not commingle and shall separately account for and
segregate payment stablecoin reserves, payment stablecoins, cash, and
other property of a customer from the custodian's own assets. A
custodian should ensure that accounts are appropriately titled and
ownership is clear for each of the customers that own the payment
stablecoin reserves, payment stablecoins, cash, and other property of
that customer. This requirement would apply to any property that the
custodian is maintaining on behalf of its customers. Proposed Sec.
350.104(a) is consistent with the GENIUS Act section 10(c) (12 U.S.C.
5909(c)) and implements those requirements.
Proposed Sec. 350.104(b) provides for three exceptions to the
prohibition against a custodian commingling a customer's assets with
the custodian's assets, consistent with the GENIUS Act section
10(c)(2), for operational convenience. Proposed Sec. 350.104(b)(1)
would permit an insured State nonmember bank, insured State-licensed
branch of a foreign bank, or insured State savings association that
provides custodial or safekeeping services, for convenience, to hold
payment stablecoin reserves, stablecoins, cash, and other property of a
customer within a single omnibus account containing assets of other
customers so long as the payment stablecoin reserves remain
identifiable. Proposed Sec. 350.104(b)(2) would allow an insured State
nonmember bank, insured State-licensed branch of a foreign bank, or
insured State savings association that provides custodial or
safekeeping services for payment stablecoin reserves in the form of
cash to hold such cash in the form of a deposit liability, provided
such treatment is consistent with applicable law. Proposed Sec.
350.104(b)(3) allows a custodian to withdraw and apply the share
necessary of the payment stablecoin reserves, payment stablecoins,
cash, and other property of a customer to cover routine operational
needs of the custodian, such as paying commission, taxes, storage fees,
or other lawful charges. For each of these exceptions in proposed Sec.
350.104(b)(1) through (b)(3), the custodian should follow safe and
sound practices and remain consistent with applicable laws and
regulations.
6. Reporting
Under section 10(d) of the GENIUS Act (12 U.S.C. 5909(d)), the FDIC
may require a custodian to provide information, in a form and manner
determined by the FDIC, concerning the custodian's business operations
and processes to protect customer assets. The FDIC recognizes that
while IDIs currently provide reporting on their custodial businesses
pursuant to Schedule RC-T of the Call Report,

[[Page 18558]]

Schedule RC-T does not currently require reporting specific to payment
stablecoins or payment stablecoin reserves. At this time, the FDIC is
not proposing separate reporting requirements for custodians under
subpart B. However, the FDIC is considering, and requesting comment on,
whether it would be appropriate to seek revisions to Schedule RC-T or
whether to require custodians to report on a separate form maintained
by the FDIC information relevant to custodial or safekeeping services
for payment stablecoin reserves, payment stablecoins used as
collateral, or private keys used to issue payment stablecoins.
Questions for Subpart B, Sec. Sec. 350.100-350.104)
The FDIC requests comment on the custodial requirements contained
in proposed part 350, subpart B, including the following:
Question 113: Are the subpart B proposed definitions appropriate
and sufficiently clear? Would it be helpful to define any other terms?
Question 114: FDIC's proposed subpart B would implement section 10
of the GENIUS Act (12 U.S.C. 5909) with respect to entities that are
regulated by the FDIC. Are there issues that the FDIC should bear in
mind if an FDIC-supervised entity holds reserve assets on behalf of a
PPSI that is not regulated by the FDIC?
Question 115: The FDIC proposes principles-based requirements in
line with sound custodial management practices that the FDIC
understands are industry standard. Does the proposal accurately capture
sound custodial management practices that are industry standard? Why or
why not? Are there any additional practices or standards that FDIC
should consider?
Question 116: Is it sufficiently clear in a custodial relationship
when and for what assets the minimum, principles-based requirements of
subpart B would apply? Are there circumstances where a custodian may be
unaware that payment stablecoin reserve assets held in an account are
being used as collateral and potentially subject to the requirements of
subpart B?
Question 117: The proposed rule describes how a custodian maintains
control of payment stablecoin reserve assets. Is this description
appropriately calibrated? Are there other means by which a custodian
should be deemed to have demonstrated control over these types of
assets?
Question 118: Are there additional considerations the FDIC should
take into account regarding a custodian's use of an omnibus account? To
what extent should the FDIC consider prescribing additional
recordkeeping, customer account, disclosure, or other terms or
conditions as a precondition to a custodian commingling payment
stablecoin reserve assets and other custodial assets?
Question 119: Section 10(c)(3) of the GENIUS Act (12 U.S.C.
5909(c)(3)) provides a priority regime regarding the claims of
customers against a custodian with regards to any payment stablecoins
used as collateral. The section also allows customers to expressly
waive this priority. What are the potential benefits and drawbacks of
such a priority regime, including with regards to whether it may
amplify losses PPSIs on payment stablecoin reserves that are custodied
by a custodian that provides a diversified custodial business should
there be a shortfall in a custodian's custodied assets? What market
practices are likely to arise regarding the use of the contractual
provisions that waive a customer's priority regarding payment
stablecoins used as collateral that are held in custody? To what extent
should the FDIC consider either providing guidance on the use of such
contractual provisions or requiring custodians to use such contractual
provisions in their custody agreements? How are customer waivers in
relation to custodians likely to impact the resolution of PPSIs? For
example, would they lead to additional complications in determining the
priority of claims?
Question 120: The GENIUS Act provides an exclusion from the
custodial requirements to any person solely on the basis that such
person engages in the business of providing hardware or software to
facilitate a customer's own custody, known commonly as ``self-
custody,'' or safekeeping of the customer's payment stablecoins or
private keys. Should the FDIC consider implementing language to prevent
this exception from being used to evade the custodial requirements of
the Act?
Question 121: Are there particular circumstances for which the FDIC
should provide additional clarification as to the application of
subpart B or the applicability of any exception (e.g., regarding
payment stablecoins locked in a smart contract for purposes of
``wrapping'' the payment stablecoin for use on an unsupported
blockchain)?
Question 122: To ensure that a PPSI is able to meet redemptions on
a timely basis, should the FDIC require that any custody agreement a
custodian enters into with a PPSI provide for release of any custodied
payment stablecoin reserve assets to the customer's control within a
specific timeframe? What are the costs and benefits of any such
approach?
Question 123: Should the FDIC require custodians to report on a
separate form information regarding custodial and safekeeping services
for payment stablecoin reserves, payment stablecoins used as
collateral, or private keys used to issue payment stablecoins? Should
the form request information regarding total payment stablecoin
reserves, payment stablecoins used as collateral, or private keys used
to issue payment stablecoins under custody? For payment stablecoin
reserves under custody, should the FDIC require custodians to report
the payment stablecoin reserves under custody (for affiliates and third
parties), including payment stablecoin reserves held in each of the
permitted categories of reserve assets proposed in Sec. 350.4? Is
there additional information the FDIC should include? If other forms of
reporting would be helpful, what are they? What are the costs and
benefits of requiring separate reporting?
Question 124: To what extent is Schedule RC-T of the Call Report,
in the case of FDIC-supervised IDIs relevant to custodial or
safekeeping services for payment stablecoin reserves, payment
stablecoins used as collateral, or private keys used to issue payment
stablecoins? Should revisions to Schedule RC-T or other Call Report
Schedules be made to require information relevant to custodial or
safekeeping services for payment stablecoin reserves, payment
stablecoins used as collateral, or private keys used to issue payment
stablecoins? If so, what changes should be made? What are the costs and
benefits of more detailed reporting requirements?

C. Proposal To Clarify Deposit Insurance Coverage for Reserve Deposits

Reserve assets backing payment stablecoins are an important
component of the statutory framework established by the GENIUS Act.
Through this proposal, the FDIC is seeking to clarify the treatment for
such reserves for deposit insurance purposes. In particular, the FDIC
is proposing to amend its deposit insurance rules, found in part 330 of
the FDIC's regulations, to provide that deposits held as reserves for a
payment stablecoin would be insured to the PPSI under the FDIC's
coverage rules for corporate deposits, but would not be insured to
payment stablecoin holders on a pass-through basis. As corporate
deposits of the PPSI, such deposits would be aggregated with other
corporate deposits maintained by the PPSI at the same IDI and insured
for up to the Standard Maximum Deposit

[[Page 18559]]

Insurance Amount (SMDIA), currently $250,000. The FDIC is seeking
comment on whether this is the appropriate approach and reflects the
appropriate interpretation of the GENIUS Act and FDI Act.
General Principles of Deposit Insurance Coverage
The FDIC only insures ``deposits,'' as that term is defined in
section 3(l) of the FDI Act (12 U.S.C. 1813(l)). ``Deposits'' include
demand deposits at insured depository institutions, which the GENIUS
Act provides may comprise a portion of a PPSI's reserves backing its
payment stablecoins.\30\
---------------------------------------------------------------------------

\30\ The FDIC's deposit insurance coverage does not apply to
other types of reserve assets that a PPSI may maintain pursuant to
the GENIUS Act.
---------------------------------------------------------------------------

The FDI Act establishes the key parameters of deposit insurance
coverage, including the SMDIA, and provides deposit insurance coverage
up to the SMDIA at each separately chartered IDI where deposits are
maintained. The FDI Act also provides separate insurance coverage for
deposits maintained in different rights and capacities (also known as
ownership categories) at the same institution. In other words, the
SMDIA is $250,000 per depositor, per IDI, for deposits held in each
ownership category.
Today, some deposit accounts are eligible for pass-through deposit
insurance. Pass-through deposit insurance coverage is a mechanism that
allows deposits placed at an IDI by a third party on behalf of one or
more owners to be insured as if deposited directly at the IDI by the
owner(s). Certain regulatory requirements must be satisfied for pass-
through deposit insurance to apply: (1) the deposit account records of
the IDI must expressly disclose a basis for pass-through coverage, such
as a custodial or agency relationship; (2) the identities and interests
of the owners must be ascertainable either from the records of the IDI
or records maintained in good faith and in the regular course of
business by the depositor or another party that maintains such records
for the depositor; and (3) the relationship that provides the basis for
pass-through deposit insurance coverage must be genuine, with the
deposited funds actually owned by the named owners.\31\
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\31\ 12 CFR 330.5(b); 12 CFR 330.3(h).
---------------------------------------------------------------------------

GENIUS Act Provisions Concerning Deposit Insurance
The GENIUS Act expressly provides that payment stablecoins ``shall
not be backed by the full faith and credit of the United States,
guaranteed by the United States Government, subject to deposit
insurance by the Federal Deposit Insurance Corporation, or subject to
share insurance by the National Credit Union Administration,'' and it
is unlawful to make contrary representations.\32\
---------------------------------------------------------------------------

\32\ 12 U.S.C. 5903(e)(1), (2).
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These provisions appear to be inconsistent with providing deposit
insurance to payment stablecoin holders on a pass-through basis. When
the FDIC insures deposits on a pass-through basis, it treats end
customers as depositors. Treating payment stablecoin holders as the
insured depositors on a pass-through basis seems inconsistent with the
GENIUS Act's prohibition on payment stablecoins being ``subject to
Federal deposit insurance.'' Additionally, third parties that establish
pass-through insurance arrangements often market the availability of
FDIC deposit insurance to their customers, which is consistent with the
principle that a third party offering pass-through insurance is
effectively offering an access mechanism to an FDIC-insured deposit
account. The GENIUS Act's firm prohibition on marketing payment
stablecoins as subject to deposit insurance seems inconsistent with the
concept of payment stablecoins serving as an access mechanism for FDIC-
insured deposit accounts. Moreover, the fact that a payment stablecoin
holder would generally engage in transactions by transferring payment
stablecoins, without funds ever leaving the FDIC-insured deposit
account, further differentiates payment stablecoin arrangements from
existing pass-through arrangements in which funds generally are
withdrawn from the deposit account when transactions are made.
Description of the Proposed Rule (Proposed Sec. 330.11(a)(3))
For reasons discussed above, the FDIC proposes to amend its deposit
insurance rules, found in part 330 of the FDIC's regulations, to
clarify that deposits held as reserves for a payment stablecoin are not
insured to payment stablecoin holders on a pass-through basis.

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