Fed stablecoin proposal would make circulation a capital cost for supervised issuers

A hypothetical payment stablecoin issuer within the Federal Reserve's proposed supervisory scope, with $1 billion in circulation and no revenue from activities outside its reserve assets, would start with a $20 million baseline operational-risk capital charge under the Fed's proposal announced Sept. 24. A separate loss-history adjustment and any other applicable capital charges would still have to be applied. The issuer would also need reserves backing its coins.

The proposal gives the growth of a stablecoin a direct capital consequence: more coins outstanding mean a larger baseline operating-risk charge, even if the issuer earns nothing from custody or other activities. The formula would apply to approved stablecoin-issuing subsidiaries of insured state member banks and to certain qualifying state-chartered issuers that transition to Fed supervision. The Office of the Comptroller of the Currency's pending proposal takes a different route for issuers under its jurisdiction, using a capital amount tailored to each business and a separate pool of liquid assets tied to expenses.

For the first $20 billion of payment stablecoins outstanding, the Fed would calculate the issuance portion of baseline operational-risk capital at 2%. The rate would fall to 1.5% on the next $30 billion and 1% on the amount above $50 billion. These are marginal bands: crossing a threshold would change the rate only on the additional issuance. The Board's memo also adds 25% of the issuer's three-year average annual revenue from non-reserve assets to the baseline.

At $10 billion outstanding with no non-reserve revenue, the baseline issuance portion would be $200 million. This second hypothetical remains entirely in the first band. Both calculations are hypothetical.

The Fed also proposes a loss scalar that can move the operational-risk charge up or down in response to realized losses. An individual issuer's operating-risk charge would also reflect the loss adjustment; its total capital requirement could include other components.

Capital and stablecoin reserves serve different purposes. The Fed would require covered issuers to keep eligible reserve assets with a fair value at least equal to the par value of their outstanding coins. It separately proposes a 2% capital charge on reserve assets that are uninsured deposit claims or undercollateralized reverse repurchase agreements. Those possible credit-risk charges sit apart from the operational-risk calculation. One-to-one reserve assets are a separate requirement from the $20 million baseline capital figure.