Fed Tightens Grip: New Rules Target Banks and Stablecoin Issuers, Says Bowman

The Federal Reserve is sharpening its regulatory knives. Forget the gentle nudges of the past—new rules are coming for banks and the stablecoin issuers that increasingly blur the lines with traditional finance.

The Regulatory Blueprint

Fed Governor Michelle Bowman's recent statements signal a pivot from observation to action. The framework under development isn't just about oversight; it's about defining the playing field. The goal? To manage the systemic risks these digital payment instruments introduce to the banking sector. Think capital requirements, liquidity mandates, and operational resilience—the whole traditional rulebook, adapted for a crypto-native world.

Why Stablecoins Are in the Crosshairs

Stablecoins have outgrown their niche. With their market cap measured in the hundreds of billions, they're no longer just a crypto-trading tool. They're becoming a parallel payments system, and that puts them squarely on the Fed's radar. The concern is straightforward: what happens if a major issuer fails? The fear of contagion—where a crypto collapse spills over to traditional banks—is the nightmare scenario regulators are paid to prevent.

The Banking Sector's Tightrope Walk

For traditional banks, the new rules present a classic dilemma. On one hand, there's immense pressure to innovate and engage with digital assets. On the other, the regulatory burden is about to get heavier. Banks exploring custody services or direct issuance of payment stablecoins will need to navigate a fresh layer of compliance—a costly prospect that could slow adoption to a crawl. It's the financial sector's version of 'move fast and break things' meeting 'move slowly and follow the rules.'

The inevitable friction here is between innovation and stability, a battle as old as finance itself. The Fed's playbook, honed over a century of bank failures and crises, is being tested against an asset class that operates 24/7 and recognizes no borders. One cynical take? This is less about protecting the future of finance and more about protecting the banks' turf—because nothing inspires regulatory creativity quite like a threat to the old guard's revenue streams. The final rules will reveal which master the Fed truly serves: the market or the establishment.

Fed reviewing capital rules for large banks

Bowman also discussed ongoing work on big-bank capital rules, including the long-delayed Basel III. She said her approach is to build the framework “from the bottom up,” while regulators MOVE toward a revised, more flexible version of the plan.

Previously, the Fed has shared outlines of a revised Basel III plan with other regulators that WOULD significantly ease earlier proposals for the largest Wall Street banks.

Bowman added that the Fed is also refining the G-SIB surcharge for global systemically important banks, in coordination with broader capital reform efforts.

In a related development, Federal Reserve Governor Chris Waller recently discussed a new category of limited-access “skinny master accounts.” These accounts would allow eligible fintechs, stablecoin issuers, and crypto custodians to connect directly to the Fed’s payment system without intermediary banks, though with restricted privileges.

Clearer rules and fairer oversight

In her testimony, Bowman said she is pushing for clearer, more transparent supervisory standards, especially around enforcement actions and supervisory findings. She argued that oversight should focus on real risks to safety and soundness, rather than on minor administrative issues.

She highlighted efforts to tailor rules for community banks, streamline merger reviews, and update outdated reporting requirements such as Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs).

Bowman reiterated that regulators should not influence whom banks choose to serve, saying supervisors “should never, and will not under my watch, dictate which individuals and lawful businesses a bank is permitted to serve.”

Also Read: Sony Bank Plans U.S. Stablecoin Launch by 2026