New York Proposes Stablecoin Rules to Align State Framework with Federal GENIUS Act

Jun 10, 2026

New York's financial regulator proposes new stablecoin rules to align with the federal GENIUS Act. The proposal adds custodian concentration limits and risk management requirements to existing rules like 100% reserve backing. This occurs amid a debate over the GENIUS Act's effectiveness, as a loophole may allow affiliates to pay yield, potentially causing trillions in deposit flight from banks.

GENIUS Act yield prohibition

▪The federal GENIUS Act, signed into law on July 18, 2025, created the first U.S. federal framework for payment stablecoins.
▪The GENIUS Act prohibits stablecoin issuers from paying interest or yield on their products to prevent competition with traditional bank deposits.

Affiliate yield loophole

▪Some market participants, including Paradigm and Hyperliquid, have warned that parts of the GENIUS Act could create unintended consequences for decentralized finance (DeFi).
▪The Act's yield prohibition applies only to the issuer, creating a loophole for affiliates or exchanges to offer rewards to stablecoin holders.

Deposit flight risk estimates

▪An April 2025 Treasury Borrowing Advisory Committee presentation identified $6.6 trillion in transactional bank deposits as vulnerable to migration into stablecoins.
▪Federal Reserve economists estimated a $1 trillion deposit drain into stablecoins could reduce bank lending by $600 billion to $1.26 trillion.

Stablecoin reserve composition

▪The rules require monthly reserve report certification by an issuer's CEO and CFO, plus an annual attestation from a public accounting firm.
▪The proposed NYDFS rules retain core requirements from 2022 guidance, including 100% backing by permissible assets and mandatory independent audits.
▪A new NYDFS requirement introduces caps on the amount of reserve assets that can be held with a single custodian to reduce concentration risk.
▪Stablecoin reserve composition varies, with Circle holding roughly 13% of its backing in bank deposits while Tether holds close to none.
▪Issuers with $25 billion or more in outstanding stablecoins must hold at least 0.5% of reserves, up to $500 million, in insured deposits.

White House counterargument

▪In an April 2026 report, the White House Council of Economic Advisers argued that stablecoin yield is not a significant threat to bank deposits.
▪The White House Council of Economic Advisers estimated that removing the GENIUS Act's yield prohibition would increase bank lending by only about $2.1 billion.

Regulatory enforcement outlook

▪The NYDFS proposal sets a two-business-day limit for redemptions and prohibits rehypothecation of reserve assets and paying interest on stablecoins.
▪New York's Department of Financial Services (NYDFS) proposed new rules on June 9, 2026, to align its stablecoin framework with the federal GENIUS Act.
▪A 10-day pre-proposal comment period for the NYDFS rules runs until about June 22, 2026, followed by a 60-day formal comment period.
▪The key uncertainty for the banking industry is whether regulators will close the affiliate-yield loophole in the GENIUS Act.
▪The NYDFS proposal requires stablecoin issuers to implement comprehensive risk management programs covering internal controls, cybersecurity, and third-party service providers.
▪Once finalized, existing New York-licensed stablecoin issuers will have a one-year transition period to comply with the new framework.
▪In April 2026, the Treasury's FinCEN and OFAC jointly proposed anti-money-laundering and sanctions rules for stablecoin issuers under the GENIUS Act.