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Online EducationABA, associations: Updated crypto market structure bill still puts local lending at riskJuly 22, 2026
The latest version of a proposed market structure bill for digital assets still puts at risk the local lending that drives economic activity in the U.S, the American Bankers Association and five other banking sector associations said in a joint statement. The Senate today released a new version of the Clarity Act with updates to bar presidents and other federal officials from issuing or sponsoring cryptocurrencies and other digital assets, according to a summary by CNBC. However, the revised text would not close a loophole that stablecoin issuers could exploit to bypass the 2025 Genius Act’s prohibition on interest and yield on payment stablecoins. ABA and others have noted that the Treasury Department concluded that $6.6 trillion in bank deposits could be at risk if stablecoins are allowed to pay interest or rewards. Still, the associations said that while they are disappointed the bill would not close the loophole, “we are encouraged by the constructive conversations we are having with senators who share our concerns.” “We appreciate their willingness to consider targeted changes that would strengthen the prohibition on interest-like payments for holding stablecoins, which will siphon away the bank deposits that fuel small business, mortgage and farm loans in communities across the country,” they said. “Our good faith efforts to strengthen the Clarity Act will continue.” The Senate is expected to vote on the Clarity Act before it leaves for August recess next week. Back to TopABA Banking Journal: ABA offers improvements for FSB’s ‘sound practices’ in AI adoptionJuly 22, 2026
Outlined in a June consultation report, the FSB’s sound practices seek to help board members and senior management at financial institutions as they consider AI adoption. ABA’s AI Working Group – which consists of representatives from banks of all sizes – examined the document and concluded it takes a proportionate, outcomes-focused approach. “ABA encourages the U.S. banking agencies to consider the FSB’s sound practices as a helpful input into their ongoing AI-related guidance, supervisory and policymaking efforts,” the association said in its letter. Still, ABA had several recommendations for improving the list. For example, the definition of “machine learning” could be improved and expanded. The association also offered several case studies from community banks that could be incorporated into the document. Finally, ABA suggested that the list of sound practices be reorganized and consolidated to aid its crystallization and application at banks of all sizes. “While there are several areas in which it can be improved, the consultation report as it stands is very much a solid foundation,” ABA said. Back to TopABA Banking Journal: House Republicans propose whole-of-ecosystem approach to combat fraud, scamsJuly 22, 2026
The roughly 100-page report noted that the Federal Trade Commission received more than three million fraud reports from consumers in 2025, with reported losses of $15.9 billion. The losses represented a 28% increase from the prior year and a 1,800% increase since 1997, when the agency began tracking fraud and scam statistics. Modern scams increasingly originate through social media platforms, online advertising, telecommunications networks, email and messaging services, with financial institutions often seeing only the final payment, according to the report. The authors concluded that combating scams requires coordinated action across every stage of the scam lifecycle rather than focusing solely on the payment transaction. “The threat posed by fraud and scams impacts entities beyond a single industry or jurisdiction — it is a national challenge that requires an all-of-ecosystem approach,” the report said. ABA: Report has correct focusThe committee report “rightly highlights the critical roles that technology platforms, telecommunications providers, law enforcement, policymakers, as well as financial institutions all must play in disrupting criminal fraud networks and preventing victimization,” American Bankers Association President and CEO Rob Nichols said. “We agree with many of the committee’s specific recommendations, including the need for a coordinated all-of-government approach, the removal of barriers preventing collaboration and information sharing within industries and with law enforcement and the harmonization of data collection and reporting systems to create a cohesive system through which individuals and entities can receive and disseminate reports of fraud and scams,” Nichols said. “We also strongly support the report’s call for enhanced telecommunications protections, including stronger authentication and monitoring and the prompt blocking and removal of scam calls, texts and the bad actors behind them.” Finally, the report correctly concluded that the bipartisan SCAM Act could serve as a meaningful step toward addressing fraudulent advertising on social media and reducing opportunities for criminals to target potential victims, he said. The bill (S. 3774 and H.R. 7548) would require online platforms to implement procedures to verify an advertiser’s identity before placing an ad. Platforms must also implement a program to detect impersonation on their site. “We look forward to continuing to work with Congress, the administration and other stakeholders to use this report to energize our fight against fraud and better protect consumers from these increasingly sophisticated threats,” Nichols said. Back to TopABA Banking Journal: Is the FDIC’s 2% Designated Reserve Ratio still the right target?July 22, 2026 | Patrick Mitchell and Brittany Kleinpaste
Executive summaryThe FDIC’s 2% Designated Reserve Ratio, or DRR, is a board-designated long-run target intended to keep the Deposit Insurance Fund positive through severe stress while avoiding sharp, procyclical assessment increases. While the FDIC has a statutory obligation to establish a DRR every year, the only requirement is that the DRR may not be less than 1.35% of estimated insured deposits. In 2010, the FDIC set the DRR at 2% — a policy calibration rooted in a historical simulation and a particular moment of crisis uncertainty—and has reaffirmed it at the same level every year since. After 16 years, amid significant changes in the banking industry, it’s time for an updated analysis of the calibration underlying the current target. A core analytical concern is that the 2010 calibration relied on loss provisions recorded while the industry and the broader economy were still in crisis. With the benefit of hindsight, we can now see that crisis-era provisions materially exceeded realized failure-resolution losses. The gap matters, because using provisions rather than realized losses pushes the implied long-run target upward. For simplicity and consistency, this essay refers to loss estimates recognized through provisions, including the contingent loss reserves used in the FDIC’s original 2010 simulation framework. Separately, the simulation relies heavily on losses associated with the S&L crisis at FDIC-insured banks — a substantially different period for banking practices and policy four decades ago. A constructive policy path forward is methodological, rather than rhetorical: The FDIC should re-run and publish a similar historical simulation framework using realized, failure-year losses (rather than provisions), and include updated institutional conditions and analysis to account for industry changes. More broadly, the original framework is inherently backward-looking and deterministic, which highlights the importance of reassessing its calibration as new data and industry changes emerge and are better known and understood. The analysis should adjust for updated industry conditions, as ABA has previously highlighted in comment letters here and here, including enhanced capital and liquidity requirements. The updated simulation should inform whether the current DRR remains appropriate in light of information now available that was not available in 2010. The analysis should still support the FDIC’s own objective: moderate and steady pricing, without systematically over-sizing the DIF. This essay does not argue for a specific DRR level but instead evaluates how the existing framework performs when updated with information that was not available at the time of the original calibration. An important policy consideration is that both underfunding and overfunding the DIF can carry costs. A fund that is too small may increase the likelihood of restoration plans, special assessments, or procyclical pricing during periods of stress. Conversely, maintaining a fund materially larger than necessary to achieve the FDIC’s objectives requires banks to prefund losses that may never occur, potentially increasing assessment burdens beyond what is needed to support fund resilience and pricing stability. The policy question is therefore not whether the DIF should be large or small, but whether the target is calibrated appropriately to balance resilience, stability, and cost. What is the 2% DRR?The DRR is the FDIC’s long-run target for the DIF reserve ratio (that is, the DIF balance divided by estimated insured deposits). The DRR differs from the statutory Minimum Reserve Ratio, or MRR, of 1.35%, which triggers restoration-plan requirements if the MRR falls below the statutory requirement. (For a technical analysis of the reserve ratio assessing whether the denominator should reflect the assessment base, click here.) The FDIC’s public materials describe the 2% DRR as a “long-range, minimum goal” that will increase the likelihood of the DIF remaining positive throughout periods of significant losses due to bank failures. The FDIC’s rules prescribe progressively lower assessment rates (i.e., the rate FDIC-insured banks pay into the DIF) as the reserve ratio exceeds 2% and 2.5%. The framing of the DRR’s purpose is important: the level is an outcome of a model and policy judgment, not a statutory constant — unlike the 1.35% floor, which is embedded in statute. Rather than debating the concept of a long-run target, a practical way to evaluate whether 2% remains appropriate is to revisit the numerical calibration using updated data and the FDIC’s own framework. How a historical simulation determined today’s 2% DRRThe FDIC’s long-run framework was built around a historical simulation using fund loss experience and simulated income data over a long historical window (1950–2010). The key design objective was to maintain a positive fund balance during severe stress while avoiding sharp swings in assessments paid by FDIC-insured banks. The FDIC’s analysis concluded that to maintain a positive fund balance and stable assessment rates through major crises in the sample window, the reserve ratio would have needed to exceed roughly 2% before the onset of each crisis. The recommended level reflected both reserve adequacy considerations and a broader policy objective of promoting steady, predictable assessments that would reduce the likelihood of sharp pricing increases during periods of stress. This resulted in today’s 2% DRR as a long-range target. A key technical concern: provisions vs realized lossesThe FDIC’s reliance on loss provisions in the 2010 calibration was both reasonable and necessary at the time. During an active crisis, realized resolution losses are not yet observable, and provisions represent the best contemporaneous estimate of expected losses and therefore an important driver of the DIF balance. In that sense, the original framework appropriately reflected the best information available at the time and the need to ensure fund resilience in an extremely uncertain environment. With the benefit of hindsight, however, a meaningful share of those provisions subsequently reversed as realized losses came in well below initial expectations. This evolution does not imply that the original approach was flawed ex ante, but it does suggest that revisiting the calibration using realized outcomes may yield a more accurate assessment of the fund level required to achieve the FDIC’s stated objectives without potential oversizing resulting from provision estimates that were later revised downward. A key consideration is that provisions reflect contemporaneous expectations under uncertainty, while realized losses reflect outcomes conditional on economic outcomes. The purpose of re-estimating the framework using realized losses would not be to suggest that real-time fund management should ignore expected losses under stress. Rather, it would allow the FDIC and the public to distinguish between the prefunding needed to absorb realized historical losses and the additional margin embedded to account for uncertainty, estimation risk and policy judgment. In addition to the challenges discussed above, because the DIF balance is an accounting measure rather than a cash balance, it is affected by loss provisions as they are recorded, not only by realized resolution losses. In this sense, provisions were the operative contemporaneous measure of expected losses. Because provisions incorporated worst-case expectations that later reversed, the simulation tends to imply a larger pre‑funded balance is required to maintain a positive fund under a steady pricing policy. Re-estimating the historical simulation using realized failure-year losses would represent a natural extension of the FDIC’s original framework, rather than a departure from it. These realized outcomes reflect macroeconomic recovery and resolution decisions taken during crises, which should be considered when interpreting the gap between provisioned and realized losses. One important possible limitation is that using realized losses could understate the tail risk observed at the point of stress. ABA analysis highlights the magnitude of this gap. Using data from the FDIC’s Quarterly Banking Profile, the DIF accumulated approximately $102.6 billion of loss provisions from the first quarter of 2008 to the first quarter of 2010, with over $99 billion accumulated in 2008 and 2009. Ultimately, according to the FDIC’s failed bank data, realized losses were approximately $69 billion for receiverships established between 2008 and 2013, with roughly $59 billion occurring between 2008 through 2010. Moreover, starting in 2010, the FDIC booked negative annual loss provisions (for both future and existing bank failures) for 13 straight years, interrupted only by the events of spring 2023. As such, while the DIF balance must reflect provisions in practice, calibrating long‑run funding levels based on provision patterns that later reverse may overstate the required reserve. Prior to the early 1990s, provisions for insurance losses largely tracked realized outcomes. For example, negative provisions occurred only twice (1979 and 1980) between 1934 and 1991. Since 1992, the historical record indicates that provisions have tended to exceed subsequent realized losses, with large provisions recorded during stress periods and frequently reversing in subsequent years. As evidence, the FDIC reported negative provisions in 27 of the 34 years since 1992, consistent with a tendency to overstate losses ex ante. Whether this pattern reflects appropriate estimation under uncertainty, changes in economic conditions, resolution outcomes, or other factors, it suggests value in re-estimating the long-run calibration using the expanded body of realized experience now available. Because the 2010 DRR calibration relied on provision-based losses during an ongoing crisis, the calibration embeds conservatism directly into the estimated fund size needed. Re-running the same framework using realized failure-year losses could yield a lower implied reserve ratio under similar assumptions, although the outcome would depend on the timing and clustering of losses within the simulation. Even a partial adjustment from provision-based to realized loss calibration, holding all else equal, would mechanically reduce required pre-crisis reserve levels, though quantifying that effect would require re-estimation of the full simulation. A second key concern: original calibration ignores structural changes in bankingBeyond the provisions-versus-realized-losses concern, the original historical simulation implicitly relied on crises that occurred under very different institutional regimes. The S&L crisis is frequently used as a key reference point in long-run fund sizing exercises; however, the structure of the industry and the policy regime have changed materially. Today’s banking system and business models are more diversified and resilient, and post-crisis reforms like FDICIA and the Dodd-Frank Act have introduced stronger capital, liquidity and resolution planning requirements. For example, common equity capital ratios are materially higher than pre-2008 levels. The liquidity coverage ratio and high-quality liquid asset requirements enhance systemwide liquidity, while resolution planning frameworks are designed to reduce loss severity. This does not imply that bank failures will not occur. Rather, both the probability and loss severity profile associated with failures may differ, and the correct way to reflect this change is to update the empirical calibration instead of reusing a fixed historical target. The relevant question is not necessarily whether S&L-era losses should be ignored, but whether the calibration should disclose how sensitive the implied reserve ratio is to loss experience generated under materially different institutional regimes. Current dynamics: DIF moving toward 2% faster than expectedRecent DIF dynamics provide an additional reason to revisit the calibration now: The reserve ratio has increased rapidly, rising from 1.11% following the spring 2023 failures to 1.43% as of first quarter 2026. If the reserve ratio continues to grow at its recent pace, it would reach 2% as early as 2030. The FDIC’s own projections show the reserve ratio reaching 2% by the end of 2031 under the current assessment rate schedules. (These projections do not incorporate the potential impact of the notice of proposed rulemaking regarding lower assessment rates published in June 2026.) These projections are a mechanical implication of the current schedule and baseline assumptions, relevant because it appears the DIF is on track toward the long-run target at a relatively fast pace. If a long-run target is set above the level implied by an updated calibration, rapid accretion could result in cumulative assessments that exceed those implied by a steady pricing path under alternative assumptions. Taken together, these observations raise a question about how the 2010 calibration would perform if re-estimated using updated data and institutional conditions. One interpretation is that the original framework, when recalibrated using realized losses, may imply a lower long-run reserve ratio consistent with the FDIC’s objective of maintaining a positive fund while avoiding procyclical pricing. An alternative interpretation could be that provision-based calibration appropriately captures tail risk and uncertainty that may not be reflected in realized outcomes. A third possibility is that both effects are present, suggesting that the appropriate reserve ratio ultimately reflects a policy judgment balancing the benefits of additional prefunding against the costs of maintaining a larger fund than necessary to achieve the FDIC’s stated objectives. Implications for DRR calibrationThe 2% DRR was a reasonable post-crisis calibration under uncertainty, tied to a specific historical simulation and a “steady, moderate” pricing concept. Today, the data needed to update the calibration are available, making the reasonableness of the 2% target a question that can be reassessed within the FDIC’s existing framework. The FDIC should publish an updated version of the historical simulation using today’s data and institutional framework. Whether that analysis ultimately supports retaining the current calibration or suggests an alternative calibration would be an empirical question. An empirical reassessment could include two components: First, it would re-run the FDIC’s historical simulation using realized failure-resolution losses allocated to year of failure, rather than provisions, and publish results alongside the original simulation to enable comparison. Then it would assess whether the DRR target remains well calibrated after accounting for updated industry and institutional conditions, including enhanced capital, liquidity, supervision and resolution frameworks. Reassessing the 2% DRR is ultimately an empirical question best addressed within the FDIC’s existing framework rather than through conceptual debate. Re-estimating the historical simulation using realized failure-year losses, alongside analysis that reflects modern regulatory and industry conditions, would provide a transparent basis for evaluating whether the current target remains well calibrated to the FDIC’s stated objectives. Such an exercise may imply a different reserve ratio under unchanged assumptions, or reinforce the current target, but in either case would ensure that the DRR reflects observed loss experience and current conditions rather than legacy assumptions. Aligning the long-run target with updated evidence would support the FDIC’s dual goals of maintaining fund resilience while avoiding unnecessarily elevated or procyclical assessment burdens. Patrick Mitchell is head of economic policy research at ABA. He previously served as director of the Federal Deposit Insurance Corporation’s Division of Insurance and Research. Brittany Kleinpaste is a VP for economic research at ABA. The views expressed are those of the authors and should not be attributed to the Federal Deposit Insurance Corporation. Back to TopABA Banking Journal: The Genius Act in 2026Institutions that choose to lead will shape the architecture of the next payments era. Those that partner will need to move with precision and speed.July 20, 2026 | Thomas Grundy, CRCM
When Congress enacted the Guiding and Establishing National Innovation for U.S. Stablecoins Act, commonly referred to as the GENIUS Act (the Act), it did more than establish the first federal framework for payment stablecoins, it signaled a structural shift in U.S. financial infrastructure, moving digital asset payments from the periphery of experimentation to the center of regulatory and strategic focus. By 2026, that shift becomes operationally unavoidable for banks as rulemaking is accelerating, competitive boundaries are being redrawn, and the decisions institutions make now will determine their relevance in the next generation of payments. Stablecoins have matured into mainstream liquidity tools powering global platforms, and the Act brings them squarely into the regulated perimeter as a new class of payment instrument. For banks, this moment is both challenge and opportunity, introducing new supervisory expectations while opening the door to new revenue models, customer segments, and roles in the digital asset ecosystem. Institutions that move decisively will shape the market; those that hesitate will find themselves navigating a landscape defined by others. The rulemaking process: Where the Act implementation stands in 2026The Act’s one-year implementation deadline has driven an unusually accelerated regulatory cycle, pushing federal banking agencies from conceptual frameworks to fully formed rule proposals in record time. By early 2026, the regulatory perimeter for payment stablecoins is no longer theoretical as agencies are constructing a prudential regime designed to prevent runs, protect consumers, and impose transparency on a market that has historically operated outside traditional oversight. As these rulemakings advance in parallel, the industry is entering a defining moment. The Act is not merely a compliance mandate; it is the foundation of a new payments architecture in which digital dollars are expected to operate with the same safety, stability, and supervisory discipline as established financial instruments. The Office of the Comptroller of the Currency (OCC) has led the way and continues to set the tone for the broader regulatory landscape. On February 25, 2026, the OCC issued a sweeping 350-plus-page Notice of Proposed Rulemaking (NPR) that addresses nearly all prudential requirements under the Act.1 The proposal establishes uniform standards for becoming a Permitted Payment Stablecoin Issuer (PPSI), mandates fully backed and bankruptcy remote reserves, sets enforceable redemption and liquidity expectations, introduces a rebuttable presumption against indirect yield-generating arrangements, and outlines a supervisory framework for foreign issuers. The OCC also finalized a related rule clarifying national trust bank chartering authority.2 The Federal Deposit Insurance Corporation (FDIC) has taken a narrower but strategically important path, issuing two complementary NPRs that together define how state-chartered institutions may enter the PPSI regime. The first issued December 19, 2025, establishes application and approval procedures for insured state nonmember banks and state savings associations, focusing on chartering mechanics, supervisory approvals, and operational readiness.3 The comment period was set to close on February 17, 2026, but was extended to May 18, 2026.4 The second, released on April 7, 2026, proposes prudential standards aligned with the Act’s core requirements, including one-to-one reserve backing with eligible liquid assets, daily reserve monitoring, segregation of assets, two-business-day redemption timelines, and expectations for capital, liquidity, cybersecurity, and risk management.5 The FDIC’s framework is explicitly designed to dovetail with the OCC’s rulemaking, signaling a consistent federal baseline for state-chartered institutions. The National Credit Union Administration (NCUA) has likewise advanced its rulemaking, issuing a proposal focused on licensing and supervisory requirements for credit union affiliated entities seeking PPSI status.6 The NPR outlines issuer eligibility standards tailored to credit union subsidiaries, governance and investment requirements aligned with the credit union regulatory framework, and integration with the Act’s reserve, redemption, and operational expectations. On April 8, 2026, the Financial Crimes Enforcement Network and the Office of Foreign Assets Control issued a joint proposed rule to implement provisions of the Act. As proposed, the rules will require PPSIs to meet full Bank Secrecy Act/Anti-money laundering (BSA/AML) and sanctions compliance obligations, treating them as financial institutions for purposes of AML controls, suspicious activity reporting, and sanctions enforcement. The proposal is framed as a balance between fostering innovation and protecting the U.S. financial system, ensuring that stablecoin issuers adopt programs capable of blocking, freezing, or rejecting illicit transactions while maintaining an sanctions compliance regime.7 The Department of the Treasury has taken a two-stage approach to implementing the Act’s oversight framework. In September 2025, Treasury issued an NPR focusing, in part, on defining the Bank Secrecy Act and sanctions compliance obligations that will apply to payment stablecoin issuers, signaling early that BSA/AML expectations would be central to the new regime.8 Treasury followed in April 2026, with another NPR outlining the criteria for determining whether state regulatory frameworks are “substantially similar” to federal standards, a foundational element of the Act’s state certification model.9 Together, these actions establish the federal baseline for both compliance obligations and state, federal supervisory alignment as the stablecoin ecosystem moves into the regulated perimeter. The Act is rapidly recasting the digital asset landscape into one defined by prudential standards, supervisory discipline, and operational transparency. As agencies race toward the July 18, 2026 rulemaking deadline, payment stablecoins are being formalized as a regulated payments instrument. That acceleration is forcing banks to confront strategic decisions that can no longer be deferred. Strategic decisions facing banksThe Act is effectively compelling banks to declare their strategic posture in the emerging stablecoin ecosystem. The era of passive observation is over, and institutions must now determine how they intend to participate in a market that is rapidly becoming foundational to payments and liquidity. While a handful of banks may experiment across multiple fronts, most will ultimately concentrate their resources around one of five primary strategic pathways, each with distinct operational demands, regulatory implications, and competitive consequences. Strategic option #1: Becoming a PPSIPursuing authorization as a PPSI is the most direct way for a bank to participate in the emerging stablecoin ecosystem, but it is also the path with the highest regulatory expectations and the greatest operational lift.10 The Act treats stablecoin issuance as a core financial market infrastructure function, and regulators expect PPSIs to operate with the same rigor as systemically important payments providers. As a result, institutions considering this strategy must prepare to meet a set of demanding requirements across governance, risk management, technology, and compliance as discussed below. Governance and organizational readiness Becoming a PPSI demands a governance framework capable of withstanding sustained supervisory scrutiny and supporting continuous, high-velocity operations. Regulators expect banks to demonstrate mature, institution-wide oversight of stablecoin activities, beginning with a board that is explicitly accountable for issuance, reserve management, and redemption practices. That oversight must be reinforced by a senior management structure with clearly defined responsibility across technology, liquidity, risk, and compliance assuring that stablecoin operations are embedded within the bank’s broader control environment rather than treated as an experimental or peripheral initiative. To meet supervisory expectations, banks must also maintain robust internal controls, including segregation of duties, formal escalation protocols, and independent testing to validate the integrity of systems and processes.11 Just as important, institutions must articulate a clear strategic rationale that shows how stablecoin issuance aligns with their business model, risk appetite, and long-term operational capabilities. In short, regulators will expect a bank to demonstrate not only that it can issue a stablecoin, but that it can do so safely, consistently, and at scale under conditions that mirror the demands of a critical payments infrastructure. Reserve management and liquidity infrastructure The Act imposes strict, nonnegotiable reserve requirements, obligating a PPSI to maintain high-quality and highly liquid assets backing every outstanding token on a one-to-one basis.12 Meeting this standard requires ongoing liquidity monitoring, stress testing, and precise reconciliation processes, supported by independent audits that validate the composition and valuation of the reserve portfolio. Institutions must also demonstrate operational readiness for real-time redemption, with the capacity to absorb large outflows without disrupting their balance sheet or broader financial stability.13 This is not a passive treasury function; it is an active liquidity-risk operation that mirrors the demands placed on money market funds and large scale payment processors. It requires continuous attention, disciplined controls, and resilient infrastructure. Technology and operational infrastructure Stablecoin issuance is, at its core, a technology-driven business operating within the framework of a regulated financial institution. To function as a credible issuer, a bank must build and maintain tokenization infrastructure capable of minting, burning, and tracking stablecoins across public or permissioned blockchains. That infrastructure must be tightly integrated with real-time ledgering and reconciliation systems so that on-chain activity aligns seamlessly with the bank’s core systems of record. The technology stack must also meet high standards for cybersecurity and operational resilience, with redundancy, incident response capabilities, and continuous monitoring designed to support uninterrupted, high-volume activity. Equally important is the development of scalable APIs and settlement rails that enable merchant acceptance, wallet connectivity, and institutional transaction flows. Regulators will expect a bank to demonstrate that this end-to-end technology environment can support continuous issuance and redemption without outages, data integrity failures, or operational bottlenecks.14 In effect, the institution must show that it can operate a real-time, always-on payments infrastructure with the reliability and precision of a systemically important financial utility. Compliance, risk and supervisory expectations The comprehensive compliance regime under which PPSIs will operate reflects the Act’s expectation that stablecoin issuance function with the rigor of a critical payments utility. This includes full Bank Secrecy Act (BSA) and sanctions compliance, supported by blockchain analytics-enabled transaction monitoring capable of identifying illicit activity across on-chain and off-chain flows.15 Consumer protection obligations must be met. These include the provision of clear redemption rights and transparent disclosures that ensure users understand how the stablecoin operates, and how reserves are managed.16 The regulatory framework further imposes strict activity limitations, prohibiting lending, rehypothecation, or any speculative use of reserves to preserve the integrity and liquidity of the backing assets.17 In addition, PPSIs are required to provide ongoing reporting such as reserve attestations, operational metrics, and incident notifications to give supervisors continuous visibility into the issuer’s risk profile and operational performance.18 Taken together, these expectations create a materially higher compliance burden than traditional payments products. Regulators will expect any bank pursuing this model to demonstrate that it can manage the risks of a 24/7, globally accessible instrument with the same discipline, transparency, and operational maturity demanded of systemically important financial infrastructure. Capital, risk appetite and strategic commitment Issuing a stablecoin is not a side project; it is a capital-intensive, multiyear strategic commitment. A PPSI must dedicate sufficient financial resources to absorb operational, legal, and reputational risks, supported by a clearly defined risk appetite that accounts for liquidity shocks, cyber events, and periods of market-wide stress.19 The undertaking also requires a long investment horizon, as institutions must build and refine infrastructure, establish partnerships, and scale distribution channels before meaningful network effects emerge. Just as important is a coherent commercial strategy that articulates how the bank intends to monetize issuance, settlement, liquidity services, and broader participation in the stablecoin ecosystem. Only institutions with strong operational capabilities, a durable balance sheet, and a compelling strategic rationale are likely to pursue this path, and regulators will expect banks to demonstrate that they can sustain the demands of a 24/7, high-velocity payments instrument over time. Strategic option #2: Providing digital asset custody or operational services to issuersBanks can indeed leverage their strengths in safekeeping, liquidity management, and disciplined risk controls to support stablecoin issuers without assuming the full obligations of a PPSI. But stepping into the role of a digital asset custodian introduces a different set of strategic challenges, most of them rooted in the information security demands of safeguarding cryptographic assets. Unlike traditional custody, where control is anchored in legal documentation and physical or electronic recordkeeping, digital asset custody hinges on the protection of private keys. This shifts the risk profile dramatically; a single compromise can result in irreversible loss, immediate customer harm, and significant reputational damage. To operate credibly in this space, a bank must build an information security architecture that can withstand persistent, well-resourced cyber threats.20 That includes hardened key management systems, secure enclave technologies, multiparty computation or hardware security module-based signing workflows, and strict segregation of operational environments. Continuous monitoring, anomaly detection, and blockchain analytics-enabled surveillance become essential, not optional. The bank must also be prepared for adversaries who target not just systems, but personnel — through social engineering, credential harvesting, and insider compromise. As a result, digital asset custody requires a level of operational discipline and cyber resilience that exceeds what most institutions deploy for traditional securities or cash management. Strategically, this means banks must reconcile their appetite for participating in the digital asset ecosystem with the reality that custody is a 24/7, high-stakes security function. It demands sustained investment in talent, technology, and incident response capabilities, along with governance structures that can demonstrate to regulators that the bank maintains exclusive control over customer assets at all times. For institutions with established custody operations or strong treasury functions, the model is attractive — but only if they are prepared to elevate their information security posture to match the threat environment. In practice, the decision to custody digital assets is less about extending existing capabilities and more about committing to operate at the security standard of a critical financial market infrastructure. Strategic option #3: Partnering with fintech or crypto-native issuersPartnership models mirror the early years of open banking with banks providing regulated infrastructure, while fintechs provide distribution, user experience, and product innovation. This approach allows banks to participate in the stablecoin market without building end-to-end capabilities. It also positions banks as trusted intermediaries in a market where regulatory compliance and consumer protection are increasingly important. The strategic advantages of the partnership approach start with an accelerated market without the burden of full buildout. Banks can participate in the stablecoin ecosystem immediately by leveraging fintech partners for token issuance, wallet UX, and distribution. This avoids multiyear investments in tokenization infrastructure, blockchain engineering, and specialized operational controls that Act compliant issuers must maintain. Banks bring depth of experience in prudential oversight, consumer protection, and operational integrity as the regulated backbone overseeing Know Your Customer (KYC)/AML, reserve management, liquidity controls and supervisory reporting, all indispensable to fintech partners and endusers. Fintechs can iterate on user experience, programmability, and new use cases at a pace banks typically cannot match. The partnership model allows banks to benefit from this innovation while maintaining a controlled risk perimeter aligned with their supervisory expectations. Banks can view these partnerships as proving ground. If stablecoin volumes scale or regulatory clarity increases, banks can selectively insource capabilities in reserve management, token issuance, or onchain settlement without having overcommitted capital prematurely. Moreover, banks can generate fee-based revenue from custody, settlement, compliance services, and API based infrastructure without taking on the full operational burden of becoming an Act registered issuer. In terms of strategic drawbacks, by placing dependence on fintech partners for executing on customer experience and growth, banks risk ceding to fintech partners the most valuable aspect of the value chain — distribution of products, services and customer engagement. Over time, this may limit brand visibility, customer ownership, and the ability to shape emerging stablecoin use cases. Even when fintechs handle frontend functions, regulators will expect banks to maintain oversight, vendor risk governance, and compliance assurance.21 This creates asymmetric responsibility where banks bear supervisory risk for activities they do not fully control. If many banks adopt the same model, the regulated infrastructure layer could become commoditized. This may limit influence over product design and banks may be constrained in shaping token features, interoperability standards, or programmability attributes, all areas that will define competitive differentiation as the market matures. There also is the potential for misalignment of risk appetite and pace of innovation. Fintechs may push aggressively into new use cases such as crossborder settlement, embedded finance, and corporate treasury automation, exceeding a bank’s risk tolerance or supervisory comfort and straining partnerships. The partnership route offers banks a sensible, low-commitment way to establish a foothold in the Act era. The partnership model is a pragmatic, low-friction entry point for banks navigating the Act’s early regulatory landscape. It allows institutions to participate in stablecoin markets quickly, credibly, and with manageable investment. But it may not be a long-term strategy by default. Banks might view this as a transitional posture, one that preserves options while allowing time to evaluate whether to evolve into full issuers, specialized settlement providers, or orchestrators of the broader tokenized economy. Strategic option #4: Focusing on tokenized depositsSome institutions may decide that tokenized bank liabilities, rather than stablecoins, better align with their risk appetite and supervisory expectations. Tokenized deposits offer many of the same benefits as stablecoins (speed, programmability, interoperability) while remaining fully within the traditional banking framework. For banks that want to modernize payments without entering the stablecoin market directly, tokenized deposits may be the preferred path. There are plenty of arguments favoring industry investment in supporting tokenized deposits versus direct involvement in stablecoins. The main argument most often waged is that tokenized deposits preserve deposit base and that stablecoins risk disintermediation. Stablecoins can reduce, restructure, or displace bank deposits depending on adoption patterns, reserve allocation, and whether issuers gain master account access. If stablecoins substitute for bank deposits, banks lose funding. Deposit outflows to stablecoins reduce credit supply through balance sheet contraction, higher funding costs, liquidity buffer requirements, and maturity transformation constraints. It is estimated that for every $100 billion net deposit drain, this reduces lending by $60 billion to $126 billion, with additional reductions from composition effects. Tokenized deposits preserve the deposit-to-loan multiplier, while PPSI adoption erodes banks’ ability to extend credit.22 Arguments aside, a balanced path is emerging in which tokenized deposits and payment stablecoins evolve as complementary, not competing, instruments. In this middle-ground model, tokenized deposits remain the primary on-chain expression of commercial bank money, supporting insured retail and commercial payments, prudentially supervised balance sheet activity, and on-chain settlement for customers who want blockchain functionality without exiting the banking system. Stablecoins, by contrast, occupy the open-loop, platform-native domain, powering global marketplaces, cross-border flows, and decentralized finance. Rather than forcing a binary choice, each instrument can meet specific market needs when optimized for its respective environment. In this model, tokenized deposits anchor the regulated financial system, while PPSIs extend programmability and reach into broader digital ecosystems. Strategic option #5: Monitoring from the sidelinesObserving from the sidelines as a strategy may be viable in the short term, particularly for institutions assessing demand, regulatory clarity, or competitive fit. But it carries significant risks. Financial institutions that move early will shape customer expectations, build partnerships, and establish market share. Those that wait may find themselves competing on someone else’s terms. Strategic implications by bank segmentCommunity banks: Niche opportunities, real constraints Community banks face both opportunity and risk. On one hand, they can carve out roles in local market use cases, such as supporting small business payments, community-based fintech partnerships, or regional economic development initiatives. On the other hand, scale, technology investment, and supervisory expectations may limit the ability of smaller financial institutions to issue stablecoins directly. True to the times, a realistic, viable path for community banks is often collaboration. This approach leverages third-party infrastructure while maintaining customer relationships. By partnering with fintechs, core providers or consortiums, community banks can offer stablecoin-enabled services without building the underlying technology themselves. Regional banks: Modernization under pressure Regional banks sit in the most competitively pressurized position. Banks in this size category must modernize infrastructure to remain relevant in treasury services, payments, and commercial banking. They face pressure from money-center banks with scale and from fintechs with speed. Stablecoin-enabled services could become a differentiator if they move decisively. For regional banks, the Act is less about issuing stablecoins and more about upgrading capabilities related to blockchain connectivity, real-time settlement, digital asset custody, and enhanced compliance. Institutions that invest early will be better positioned to compete for corporate clients seeking faster, programmable, and globally interoperable payment solutions. Money-center banks: Scale and execution Large banks have balance sheets, global networks, and operational sophistication to issue stablecoins at scale. They are also best positioned to integrate stablecoins into wholesale settlement, cross-border payments, and liquidity management. But they face the highest expectations from regulators and the market. For money-center banks the challenge is not a question of capability; it is about speed and time to market. Delay in adopting risks allowing fintechs and crypto firms to define the market before banks fully engage. Money-center banks that move quickly can shape industry standards, influence regulatory expectations, and capture early mover advantages. Preparing for the Act: Bank priorities for 2026Regardless of strategic posture, banks must prepare for a new supervisory environment. Key priorities include: Internal literacy and governance Boards and executive managers must understand stablecoin mechanics, risks, and regulatory obligations. This understanding must translate to governance structures updated to reflect new operational and compliance responsibilities. Banks that treat digital asset literacy as a strategic competency rather than a technical niche will be better positioned to make informed decisions. Strategic fit assessments Banks face a determination as to whether issuance, custody, partnership, tokenized deposits, or some combination of digital products and services align with their business model, customer base, and risk appetite. Cross-functional input will be essential to assessing these business models. Making a business decision of this magnitude and complexity cannot be treated as a siloed strategic exercise. Each pathway touches multiple risk domains, operational dependencies, and regulatory expectations. To effectively navigate this decision, the process must engage: Strategy to evaluate market opportunity, competitive positioning, and whether stablecoin participation advances the bank down a broader digital asset roadmap. Risk management to assess operational, liquidity, credit, third-party, model, and reputational risks, each of which manifests differently across issuance, partnership, and tokenized deposit models. Compliance to interpret the Act and the implementing regulations, supervisory expectations, BSA/AML and sanctions obligations, and the heightened scrutiny applied to bank-fintech business model arrangements supporting on-chain activities. Technology to determine whether existing infrastructure can support on-chain settlement, wallet integrations, reserve reporting, and real-time monitoring or whether system upgrade and modernization is required. Treasury to evaluate reserve composition, liquidity implications, intraday settlement flows, and how stablecoin liabilities interact with the bank’s balance sheet strategy. No single functional area has a full picture. Only a coordinated assessment can determine whether the bank’s capabilities, economics, and risk posture align with the demands of stablecoin issuance, the constraints of partnership, or the operational logic of tokenized deposits. Technical readiness Stablecoin-enabled services introduce a set of capabilities that extend well beyond traditional banking infrastructure. Banks must be prepared to support wallet functionality for customers and counterparties, including key management, address whitelisting, and transaction-level controls.23 Additionally, robust blockchain connectivity, with nodes, monitoring tools, and analytics that allow real time visibility into on-chain activity will factor into overall readiness. Effective reserve management systems are essential to track assets, reconcile flows, and meet the Act’s reporting requirements. In parallel, banks must implement smart contract governance frameworks to oversee contract deployment, versioning, permissions, and auditability. All of this must coexist within cybersecurity controls tailored to digital asset risks, including private key protection, multiparty computation, and enhanced monitoring for on-chain threats. Given the breadth and specialization of these requirements, banks must make deliberate decisions about whether to build, buy, or partner for each capability, while balancing speed, control, cost, and regulatory expectations as they shape their long-term digital asset strategy. Vendor due diligence Banks evaluating whether to become a PPSI must treat vendor due diligence as a strategic capability, not a compliance formality. The PPSI model depends on a tightly integrated ecosystem of blockchain analytics firms, custody providers, wallet vendors, and smart contract auditors, each introducing operational dependencies that regulators will scrutinize. The strategic question is not simply whether a vendor is “adequate” but whether the bank can demonstrate credible, end-to-end control over a technology stack that operates continuously, globally, and with little tolerance for error. Blockchain analytics partners, for example, become extensions of the bank’s financial crime program. Their methodologies, data sources, and false positive rates directly influence the bank’s ability to detect illicit activity on-chain. Custody providers raise questions about key management models, segregation of duties, and the bank’s ability to evidence exclusive control over customer assets. Wallet vendors shape the customer experience and the bank’s exposure to device-level vulnerabilities, while smart contract auditors determine whether the bank can defend the integrity of the token itself. Each relationship therefore affects not only risk but also the bank’s credibility with supervisors, counterparties, and the market.24 Strategically, banks must decide whether to build, buy, or partner for these capabilities — and how those decisions align with long-term ambitions in digital assets. Overreliance on a single vendor may accelerate time-to-market but creates concentration risk and weakens negotiating leverage. A multivendor model improves resilience but increases integration complexity and oversight demands. Banks must also consider how vendor choices signal maturity, as regulators will expect evidence that the bank selected providers based on rigorous criteria, validated controls, and established monitoring mechanisms capable of supporting a 24/7 issuance and redemption environment. In short, vendor due diligence for PPSI candidates is not a back-office exercise. It is a strategic design decision that shapes the bank’s risk posture, regulatory defensibility, and long-term ability to operate a stablecoin program safely and at scale. Wallet and custody capabilities Whether built or outsourced, digital asset safekeeping becomes a core competency. Banks must evaluate custody models, insurance coverage, segregation of assets, and operational controls. Whether developed internally or sourced through a third-party provider, digital asset safekeeping becomes a foundational competency for any bank operating as a PPSI. The bank must evaluate not only the technical custody model, but also how that model supports continuous issuance, redemption, and settlement obligations. Insurance coverage, asset segregation, and operational controls take on heightened importance because the bank must be able to demonstrate exclusive control over private keys and uninterrupted access to customer assets.25 Strategically, custody design choices shape the bank’s entire risk posture. Decisions about wallet architecture influence customer experience, fraud exposure, and the bank’s ability to enforce address-level controls. Key management workflows determine resilience against insider threats and external compromise. The bank must also assess how custody and wallet infrastructure integrate with broader governance requirements such as smart contract permissions, reserve management systems, and blockchain monitoring tools, so that the stablecoin program operates as a coherent, defensible whole. In effect, custody is no longer a supporting function; it becomes the operational core of the PPSI model. Banks must therefore treat wallet and safekeeping capabilities as strategic infrastructure that must withstand supervisory scrutiny, adversarial threat environments, and the demands of a 24/7 digital asset ecosystem. Compliance and risk priorities under the ActThe Act establishes a distinctly new compliance perimeter for banks, requiring traditional control frameworks to evolve in ways that reflect the realities of blockchain-based financial activity. Core compliance management systems must be expanded to incorporate blockchain data, smart contract risks, and digital asset transaction monitoring, transforming crypto oversight from an add-on into an integrated component of the bank’s Compliance Management System (CMS). Moreover, transaction monitoring must also be strengthened, as blockchain transactions introduce novel typologies such as cross-chain transfers, decentralized exchange activity, and deliberate obfuscation techniques that demand enhanced monitoring, analytics, and escalation protocols. At the same time, banks must conduct stablecoin-specific risk assessments covering liquidity, operational, cybersecurity, and consumer protection risks unique to tokenized liabilities. These assessments will anchor dialogue with regulators and shape the bank’s risk management posture. Banks will be expected to deploy blockchain analytics capable of tracing activity across chains and through obfuscation layers, implement high risk transaction detection models tuned to digital asset typologies, and build investigative processes that integrate on-chain and off-chain data.26 Regulators will expect nothing less. The road ahead: A strategic inflection pointStablecoins are rapidly maturing into both a next generation payments rail and a programmable liquidity layer, and the Act is accelerating their movement into the regulated core of U.S. finance. The competitive landscape is already reshaping itself as banks, fintechs, and crypto-native issuers position for scale, market share, and institutional trust. For banks, 2026 is not simply another planning cycle — it is a strategic breakpoint and a genuine sea change in how value will move through the financial system. Institutions that choose to lead will shape the architecture of the next payments era. Institutions that choose to lead will shape the architecture of the next payments era. Those that partner will need to move with precision and speed. Those that wait risk watching the center of gravity shift without them. The Act is far more than a compliance mandate. It is a catalyst to modernize infrastructure, assert competitive differentiation, and reclaim the role of banking at the center of a financial system that is rapidly becoming digital. Thomas Grundy, CRCM is the Director, US Regulatory Consulting at Wolters Kluwer. Tom joined Wolters Kluwer in 2013 and has over forty years’ experience spanning federal regulation, financial industry compliance, and advisory consulting. His career includes service as a federal regulator with both the Office of the Comptroller of the Currency and the Federal Reserve Board, as well as senior compliance roles within banking, mortgage, and fintech organizations. Tom draws on this diverse background to advise financial institutions on strategies and solutions that strengthen risk management and support sound, sustainable compliance in a dynamic regulatory landscape. Tom is a graduate of the University of Kentucky, the Graduate School of Banking at the University of Wisconsin, and the American Bankers Association National Graduate Compliance School and is a Certified Regulatory Compliance Manager. Reach him at [email protected] and (270)402-9069. Back to TopCISA News: The Blueprint for Equitable Digital Participation
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