Federal OCC guidance on 'Genius Act' leaves states room to shape yield, reserves and supervision

Yubeni Shrego, senior director of regulatory policy at the Conference of State Bank Supervisors, told the Commission to Study that the Office of the Comptroller of the Currency's 367-page notice of proposed rulemaking implementing the Genius Act raises far-reaching choices for states and banks.

Shrego said the OCC's proposal, issued about 10 days before the meeting, clarifies permissible activities for stablecoin issuers, reserve-valuation and liquidity expectations, risk-management standards, capital and an operational backup requirement, and a broad anti-evasion approach to yield payments. "I've been really impressed with the work your commission has done so far," Shrego said, before walking commissioners through the OCC's major design choices and the federal agencies' near-term deadlines for comments.

Why it matters: The OCC's approach could shape whether stablecoin issuers can rely on third-party arrangements that effectively pay holders a return, how much liquid backing issuers must hold, and what supervisory regime applies to national-bank subsidiaries versus state-authorized issuers. That in turn affects consumer protections, market stability and which business models states can attract.

Details from the presentation: Shrego described the OCC's rebuttable presumption that arrangements in which affiliates or third parties pay "yield" will be treated as payments to holders; the OCC defines yield broadly (cash, tokens or other consideration). The OCC also set liquidity-diversification guidance (examples discussed by Shrego included a short-duration weighted-average maturity and percent limits on assets parked at a single institution), mandatory monetization capability for reserves, and a gate that allows issuers to extend redemptions to seven days during runs that exceed 10% daily redemption demand. For capital, Shrego said the OCC suggested a $5 million initial common-equity floor and a separate operational backstop equal to 12 months of expenses for issuers.

State flexibility and open questions: Shrego repeatedly urged states to review the federal proposals and consider where to diverge. He noted four state implementation models emerging in other jurisdictions—virtual-currency licensing, special-purpose depositories, state-level Genius-style statutes, and regulator-delegation schemes—and said Treasury's forthcoming "substantial similarity" guidance for states will determine how much variation is permitted. He also highlighted an unresolved practical question for foreign issuers: how to ensure sufficient U.S.-located reserves to serve U.S. customers and whether foreign issuers must consent to state jurisdiction for consumer-protection enforcement.

Responses during Q&A: Commissioners pressed on the yield issue. Shrego said the debate is principally about safety: "If stablecoins are allowed to pay yield and are a payment instrument as well, there's a fear that a lot of deposits will fly to stablecoins," increasing uninsured liquidity outside the banking safety net. He suggested states could design different approaches to third-party payments, but that Treasury's guidance and Congress's action could change federal agency rules.

Next steps: Shrego urged interested parties to submit comments to the OCC's rulemaking record by the posted deadline and noted the CSBS intends to file a comment letter. He emphasized that some federal deadlines (including an early July regulatory implementation window and a January 2028 state certification milestone) are approaching and that Treasury's substantial-similarity standard will be decisive for states.

The commission opened discussion to several technical follow-ups; no formal state policy vote followed the presentation. The meeting then continued with an industry presentation on custody, tokenized deposits and consumer disclosures.