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.How the Fed's proposed charge growsFor the first $20 billion of payment stablecoins outstanding, the Fed woul...