U.S. Banking Groups Push to Close Stablecoin Yield Loophole in GENIUS Act

Several major U.S. banking groups, including the Bank Policy Institute (BPI), American Bankers Association, and Financial Services Forum, have urged regulators to close what they describe as a regulatory loophole in the GENIUS Act that could allow stablecoin issuers to indirectly offer interest or yield on their tokens [1]. In a letter to Congress, the groups warned that the current legal framework creates a risk of destabilizing the traditional banking system by enabling stablecoins to compete unfairly with banks for deposits [1].

The GENIUS Act, signed into law by former U.S. President Donald Trump on July 18, 2025, prohibits stablecoin issuers from directly offering interest or yield to holders. However, the law does not explicitly extend this restriction to affiliated entities or crypto exchanges, creating what the banking groups call a “loophole” [1]. This omission could allow stablecoin providers to sidestep the law by offering yield through partners, such as crypto exchanges like Coinbase and Kraken, where users can earn returns on stablecoins like USDC [1].

Offering yield is a powerful tool for attracting users, and the concern is that widespread adoption of yield-bearing stablecoins could undermine traditional banks, which rely on deposit inflows to fund loans and generate income [1]. The BPI cited a U.S. Treasury report from April that warned allowing stablecoins to offer yield could result in up to $6.6 trillion in deposit outflows from traditional banks [1]. Such a shift could reduce credit availability in the economy, leading to higher interest rates, fewer loans, and increased costs for households and small businesses [1].

The BPI emphasized that stablecoins differ from traditional bank deposits and money market funds in that they do not fund loans or invest in securities to generate yield [1]. This fundamental difference, they argue, means that stablecoins should not be allowed to offer returns in the same way that regulated financial institutions do [1].

Despite the warnings, the stablecoin market remains a small part of the broader U.S. financial system. As of June 30, the total market capitalization of stablecoins stood at $280.2 billion, compared to a U.S. money supply of $22 trillion [1]. Tether (USDT) and Circle’s USDC are the largest stablecoins by market cap, holding $165 billion and $66.4 billion, respectively, according to CoinGecko [1]. The U.S. Treasury has projected that the stablecoin market could grow to $2 trillion by 2028 [1], suggesting that the issue may become more critical in the coming years.

Sources:

[1] Cointelegraph. [https://cointelegraph.com/news/us-bankers-want-stablecoin-yield-loophole-closed](https://cointelegraph.com/news/us-bankers-want-stablecoin-yield-loophole-closed)