Maryland Legal Alert for Financial Services
Stablecoin Opportunities for Financial Institutions
On July 18, 2025, the federal Guiding and Establishing National Innovation for U.S. Stabelcoins Act (GENIUS Act) was signed into law. The GENIUS Act establishes a framework for stablecoin issuance and regulation in the U.S., with specific implications for financial institutions, particularly regarding their subsidiaries. Stablecoins are a class of digital asset tied to a “reference” asset to maintain a stable value and they are intended to be used as a medium of payment exchange that can be processed faster and at less cost than traditional fund transfer/payment mechanisms. Only entities designated as "permitted payment stablecoin issuers" can issue stablecoins in the U.S. This includes subsidiaries of insured depository institutions (subject to receiving prior approval from their primary financial regulator). Entering the stablecoin arena will come with additional regulatory oversight from a financial institution’s primary federal regulatory. In addition, issuance of stablecoins is subject to reserve requirements.
Stablecoin issuers must maintain reserves backing their stablecoins at a one-to-one ratio. These reserves must consist of highly liquid assets, such as U.S. dollars, short-term U.S. Treasury securities, or certain other low-risk assets approved by federal regulators. Issuers must publish monthly reports detailing the composition of their reserves and must disclose information about their redemption policies. Stablecoin issuers also must have the technical capability to freeze, seize, or burn payment stablecoins when legally required to do so.
The GENIUS Act opens up several potential revenue streams for financial institutions:
- Because the GENIUS Act requires stablecoins to be fully backed by reserves, financial institutions can generate income by investing these reserves in short-term government securities and earning interest on those investments.
- As stablecoins offer faster and potentially cheaper transaction settlements (relative to traditional banking methods), financial institutions will have the opportunity to charge fees for facilitating payment transactions, attracting businesses looking to reduce their costs and accelerate payment processing.
- Financial institutions will also have opportunities to manage related services, such as custody and redemption.
The GENIUS Act generally will take effect on the earlier of 18 months after the July 18, 2025 enactment date; or 120 days after federal regulators issue coordinated regulations to implement the new law. The GENIUS Act presents an opportunity for financial institutions to capitalize on the growing demand for stablecoins by leveraging their existing regulatory credibility and financial infrastructure to offer new and efficient payment and financial services.
For more information, contact Christopher R. Rahl.