What Banks Are Actually Doing With Stablecoins

Two questions get asked about banks and stablecoins, and they point in opposite directions. Why are banks against stablecoins. Why are banks issuing stablecoins.

Both are real searches, and both were correct, at different times, about different products. What changed between them is a single provision of the GENIUS Act.

The sentence

Section 4(a)(11) of the Act, headed “Prohibition on interest”:

“No permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay 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.”

Read the parenthesis. Not just cash. Not just tokens. Any form of consideration. The drafting anticipates the workarounds.

That sentence decides the entire bank question, because a dollar token that pays a yield is a competitor to a savings account, and a dollar token that pays nothing is a competitor to a wire transfer. Banks were never fighting a payment instrument. They were fighting a deposit substitute that could outbid them for funding while sitting outside the deposit framework.

The law removed that. What is left is a payment rail, and banks are large incumbents in payments who would rather own a new rail than watch one get built around them.

Source, read in full: Public Law 119-27, section 4(a)(11)

Who is allowed to issue one

Section 2(23) defines a permitted payment stablecoin issuer as a person formed in the United States that is one of three things:

• a subsidiary of an insured depository institution approved to issue payment

stablecoins under section 5;

• a Federal qualified payment stablecoin issuer, regulated by the Comptroller; or
• a State qualified payment stablecoin issuer.

The first category is a bank subsidiary. It is written into the definition, and a bank holding company does not need a new charter or a new species of entity to use it.

Where the reserves go, which is the part banks care about

Section 4(a)(1) requires reserves of at least one to one, and it enumerates what counts. Among the permitted assets:

“funds held as demand deposits (or other deposits that may be withdrawn upon request at any time) or insured shares at an insured depository institution (including any foreign branches or agents, including correspondent banks, of an insured depository institution) …”

and

“Treasury bills, notes, or bonds … with a remaining maturity of 93 days or less; or … issued with a maturity of 93 days or less”

So the money backing a compliant stablecoin sits in short Treasuries or in deposits at insured banks. The float does not leave the banking and Treasury system. It moves within it, into short-dated government paper and into demand deposits at institutions that are already regulated.

This is why the reserve rules read like a bank-drafted document. They are a funding channel as much as a safety rule.

There is also a piece of plumbing already in place for this. OCC Interpretive Letter 1172, from 21 September 2020, addressed whether banks may hold dollar deposits serving as reserves backing stablecoins. Interpretive Letter 1183 of 7 March 2025 reaffirmed that it stands. The permission to hold the reserves predates the law that requires them.

Source, read in full: OCC Interpretive Letter 1183, 7 March 2025

Two more provisions that read as bank wins

The ten billion dollar tripwire. A state qualified issuer may stay under a state regime only up to 10 billion dollars of consolidated outstanding issuance. Above that, section 7(d) gives it 360 days to move to the federal framework or to stop issuing new stablecoins until it drops back below the threshold. Scale pulls an issuer into federal banking supervision. There is no path to becoming very large and staying lightly supervised.

The clause aimed at large technology companies. Section 4(a)(12) bars a public company “not predominantly engaged in 1 or more financial activities”, and its majority-owned subsidiaries and affiliates, from issuing a payment stablecoin unless it obtains a unanimous vote of the Stablecoin Certification Review Committee. The committee’s vote requires findings that the issuance poses no material risk to the banking system, financial stability or the Deposit Insurance Fund, and that the company will accept data-use limits: without consumer consent, stablecoin transaction data may not be used to target or rank advertising, sold to third parties, or shared with non-affiliates.

Unanimous, across a committee. That is a high bar, and it is aimed squarely at the firms banks fear most in payments.

The date, and the 29 days that could still change it

Section 20 sets the effective date as the earlier of two triggers:

“the date that is 18 months after the date of enactment of this Act; or … the date that is 120 days after the date on which the primary Federal payment stablecoin regulators issue any final regulations implementing this Act.”

Enactment was 18 July 2025, so the backstop is 18 January 2027.

The early trigger has not fired. As of 22 August 2026 the implementing rulemakings are still proposals. The OCC published its notice of proposed rulemaking on 2 March 2026 with comments closing 1 May. The FDIC’s proposal closed to comment on 9 June. Treasury published a further proposal on 18 August 2026, four days before this piece, with comments open until 19 October, although Treasury is not itself among the primary Federal payment stablecoin regulators that section 20 names.

Now the arithmetic. For the early trigger to produce a date before 18 January 2027, final rules from those regulators would have to be issued on or before 20 September 2026, which is 120 days beforehand. That is 29 days from now.

If nothing final appears in that window, the effective date is fixed at 18 January 2027 and cannot move earlier. This is worth watching, because it is the date on which issuing a payment stablecoin in the United States without a license stops being permissible.

Sources: Federal Register documents 2026-04089 (OCC, proposed rule, published 2 March 2026), 2026-06974 (FDIC, proposed rule) and 2026-16796 (Treasury, proposed rule, published 18 August 2026, comments close 19 October 2026), confirmed as proposals through the Federal Register API.

What banks are doing in the meantime

The following is reported, not verified from institutional primary sources, for the reason given in the editor’s note.

The most visible move is not a stablecoin at all. It is the tokenized deposit: a bank-issued, on-chain representation of a balance that stays a deposit, stays inside the deposit framework, and does not become a new instrument that has to qualify under the Act. BNY is reported to have launched one in January 2026.

That choice makes sense against everything above. A tokenized deposit gives a bank the settlement properties it wants without giving up the funding it already has, and without waiting for a licensing regime that does not take effect until 2027. A stablecoin subsidiary is the option that is being prepared. A tokenized deposit is the option that can run now.

What to watch, in order

1. Any final rule from the OCC, FDIC, Federal Reserve or NCUA before 20 September 2026. It would move the effective date and compress every institutional timeline behind it. 2. The first section 5 approval of a bank subsidiary as an issuer. That is the moment “banks are issuing stablecoins” becomes literally true rather than a description of intent. 3. Whether any issuer tests the interest prohibition indirectly, through rewards, fee rebates or affiliate payments. The statute’s parenthesis is broad and untested, and the first attempt will define how broad. 4. Whether tokenized deposits and stablecoins converge or separate. They are currently different legal objects that do a similar job, and that rarely stays stable.

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