Washington Just Rewrote the Rules for Stablecoins. Banks Feel the Impact.

The OCC's final GENIUS Act regulations establish a federal framework for stablecoins, but uncertainty over rewards raises larger questions about bank deposits, lending, and the future of digital dollars.

On October 21, 2026, the Office of the Comptroller of the Currency (OCC) completed regulations implementing the GENIUS Act (federal standards for stablecoins signed into law by President Trump on July 18, 2025). The rules, which take effect on January 18, 2027, address several key points including reserve requirements, risk management, custody, and regulatory oversight. These new oversights will subject issuers to requirements similar to those in traditional finance.

However, a big question remains unresolved: whether cryptocurrency exchanges and other third parties can continue to provide rewards to stablecoin holders without violating restrictions on interest payments.

New Federal Standards for Stablecoin Issuers

The GENIUS Act allows banks and other financial companies to issue stablecoins if approved by federal or state regulators. These companies are known as permitted payment stablecoin issuers (PPSIs). Foreign issuers can also sell stablecoins in the U.S. if they register with the OCC, operate under comparable regulations in their home countries, and maintain sufficient reserves in U.S. financial institutions

The OCC's final rule implements these requirements through a new regulatory framework under the regulation 12 CFR Part 15. The most important provisions are requirements governing the assets backing stablecoins. Most importantly, issuers must maintain reserves to cover outstanding stablecoin obligations, using eligible liquid assets such as cash, bank deposits, and short-term U.S. Treasury securities. This ensures redemption with near-risk-free assets.

More specifically, issuers must process redemptions within two business days and disclose the assets backing the tokens.  Secondly, they have to provide financial reports to the OCC and undergo independent audits. Lastly, to protect against downturns, issuers need to operate a separate pool of liquid assets to cover 12 months of operating expenses. These requirements are outlined in Sections 15.12, 15.14, and 15.41.

It’s important to note that the OCC's final rule does not address every regulation under the GENIUS Act. For example, requirements relating to the Bank Secrecy Act, anti-money laundering, and sanctions will be addressed through separate rulemaking in coordination with the Treasury Department.

The Unresolved Stablecoin Rewards Debate

Although the final regulations establish clearer operating standards for stablecoin issuers, they leave considerable uncertainty surrounding rewards paid to stablecoin holders. The GENIUS Act prohibits stablecoin issuers from paying interest or yield solely in connection with holding, using, or retaining their stablecoins. However, cryptocurrency exchanges and other intermediaries have developed programs that reward customers for maintaining stablecoin balances on their platforms.

This distinction has become a major issue in the stalled CLARITY Act negotiations. For example, Circle issues USDC, but Coinbase distributes it and offers rewards to customers who hold it. The debate is whether these rewards violate the GENIUS Act's restrictions on stablecoin issuers paying interest.

The OCC originally proposed treating certain rewards paid through third parties, such as crypto exchanges, as potential violations of the GENIUS Act's ban on issuer-paid interest. However, the OCC removed this provision from its final rule because it could lead to unfair restrictions on reward programs that don't actually violate the law.

Instead, the OCC will review these arrangements individually to determine whether they break the rules. This means exchanges like Coinbase may still be allowed to offer stablecoin rewards, but not if those payments are merely a way for issuers like Circle to circumvent the ban on paying interest. For now, the exact limits on these rewards remain unclear.

Analysis: Stablecoins and Traditional Finance

The OCC's regulations reinforce a familiar trend: crypto is being brought into traditional finance rather than replacing it. By requiring stablecoins to be backed by safe assets, such as cash and U.S. Treasuries,  regulators are keeping the existing monetary system at the center of digital finance.

This also echoes Keynes and Minsky's emphasis on liquidity and financial stability. While much of crypto has produced little beyond new opportunities for speculation, including Ponzi-like schemes, regulators are turning to what has long supported the financial system: cash and government securities. The priority ensures a long-held tradition since the Keynesian revolution.

The GENIUS Act also gives stablecoin holders priority over other creditors if an issuer goes bankrupt, although their tokens are not FDIC-insured. Issuers must also comply with lawful orders to freeze or seize stablecoins, much like traditional financial institutions. Despite operating on blockchains, stablecoins remain subject to government oversight and depend on the same legal protections that support the existing financial system.

The debate over stablecoin rewards raises another concern for traditional banks. If exchanges like Coinbase offer attractive returns on stablecoins, customers may move money out of bank accounts. This could increase banks' funding costs and affect lending, although some of that money may return to banks through stablecoin reserves. The issue is not simply where the money goes, but how its movement changes the funding available for credit creation.

With the CLARITY Act facing an uncertain path through the Senate, passage before the end of 2026 looks increasingly difficult. Given that progress may not come until sometime in 2027 (likely mid-year), the OCC's new rules provide much-needed regulatory clarity for stablecoin issuers as the broader crypto industry awaits further legislation.

Ultimately, the regulations show that stablecoins still depend on the dollar, government securities, and traditional financial institutions, even as they compete with banks for customers. Crypto is not replacing traditional finance. It is redefining how traditional finance operates.

References

1. Office of the Comptroller of the Currency (OCC). (October 21, 2026). GENIUS Act Regulations: Final Rule.OCC Bulletin 2026-50.
   https://www.occ.gov/news-issuances/bulletins/2026/bulletin-2026-50.html

2. Office of the Comptroller of the Currency (OCC). (October 23, 2026). Implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act for the Issuance of Stablecoins by Entities Subject to the Jurisdiction of the Office of the Comptroller of the Currency. Federal Register, 91 FR 67000–67194. Includes 12 CFR Part 15, particularly Sections 15.12, 15.14, and 15.41.
   https://www.govinfo.gov/content/pkg/FR-2026-10-23/html/2026-21706.htm

3. Office of the Comptroller of the Currency (OCC). (October 21, 2026). Official News Release on the GENIUS Act Final Rule.
   https://www.comptrollerofthecurrency.gov/news-issuances/news-releases/2026/nr-occ-2026-92.html

4. Sullivan & Cromwell LLP. (June 23, 2025). Stablecoin Legislation: Senate Passes GENIUS Act.
   https://www.sullcrom.com/SullivanCromwell/_Assets/PDFs/Memos/Stablecoin-Legislation-Senate-Passes-GENIUS-Act.pdf