Fed draft limits its stablecoin application route to insured state member banks

The dollar figures in the Fed's drafts reach only firms that clear the application. That application belongs to a bank. In the proposed procedure, as crypto.news reads the notices, the insured state member bank applies and its controlled subsidiary is the contemplated issuer, while a technology company supplying wallets or software is not the applicant on that basis ^[9]. A bank with a national charter answers to a different primary regulator, and an uninsured state member bank is directed to its home state stablecoin regulator ^[10]. The GENIUS Act's other two domestic paths, a federal qualified issuer approved by the OCC and a state-qualified issuer approved by a state regulator, sit with other supervisors ^[11].

The definition of control comes from bank holding company law. The tests are at least 25% of a class of voting securities, control of a majority of directors, or a controlling influence the Board finds after notice and hearing ^[12]. For a group of banks, the Board says it may accept one application on behalf of several insured state member banks if the venture counts as a subsidiary of each ^[13]. The notice does not say every multi-bank venture meets that test ^[13]. The Fed asks which bank controls such a company, and which regulator reviews it, in Questions 1 through 4 ^[14]. crypto.news also asks when the review clock actually starts ^[5].

One capital term is fixed and the other grows with the reserves held as uninsured deposits. The fixed one is the $5 million floor for a new issuer's first three years ^[6]. The variable one is the 2% charge, $20 million on $1 billion ^[7], or four times the floor ^[17]. Divide the floor by the rate, $5 million over 0.02, and $250 million of uninsured deposits draws a charge equal to the entire starting requirement ^[15]. Above that balance, the reserve charge alone is the larger capital line ^[15].

The charter would matter less in three cases. The Board could read the consortium language broadly. The comment process could move the $5 million floor or the 2% figure, since both notices are proposals and neither is a final rule ^[3]. Or issuers without a state member bank could take the OCC and state paths ^[11].

I think the drafts put the charter question ahead of the reserve question. The Fed has not offered every fintech a direct route ^[9]. For a software company, the Fed route requires a state member bank willing to hold 25% of a class of voting stock, a board majority or a controlling influence over the issuer ^[12]. The view is wrong if the Board approves the structure crypto.news raises, in which a bank owns a small minority interest and a separate commercial company directs issuance ^[16].