US Banking Groups Warn GENIUS Act Stablecoin Loophole Could Trigger $6.6T Outflows

U.S. banking groups have raised alarms over a potential flaw in the GENIUS Act, a law designed to regulate stablecoins and their yields. According to the Bank Policy Institute (BPI), the American Bankers Association (ABA), and the Consumer Bankers Association, the current framework allows stablecoin issuers to bypass restrictions by offering returns through affiliated or partner platforms. This loophole undermines the law's intent to prevent unregulated interest-bearing stablecoins from destabilizing the broader financial system [1].

The concern is that stablecoin companies can provide returns indirectly, even as the legislation explicitly bans them from doing so directly. This creates an uneven playing field for traditional banks, which must adhere to stricter regulatory standards for deposit-taking and lending. If left unaddressed, banks warn that the loophole could lead to massive deposit outflows, with the U.S. Treasury estimating potential movements of up to $6.6 trillion into the crypto space [1].

Financial analysts have warned that such a shift would reduce the availability of credit as banks face greater deposit outflows. With less capital to lend, borrowing costs could rise, affecting both households and businesses. This scenario could slow credit creation during times of financial stress, potentially exacerbating broader economic challenges [1].

The issue has drawn attention from industry experts and compliance specialists. Stephen Aschettino, a legal partner at Steptoe, emphasized the competitive pressure stablecoins could impose on traditional banks if they are allowed to offer returns through affiliates. He noted that the structure of stablecoin platforms, which differ significantly from bank deposits or money market funds, could further complicate regulatory oversight [1].

Legislative action remains pending. While the GENIUS Act was signed into law on July 18, 2025, full implementation is expected to take years due to the need for detailed rulemaking. The Office of the Comptroller of the Currency and the Treasury Department are expected to provide additional guidance, which could directly address the stablecoin yield loophole [1].

Until regulatory clarity is achieved, major stablecoin issuers like Circle (USDC) and Tether (USDT) are closely monitoring the situation. Banks and financial groups continue to push for the loophole to be closed, arguing that it is essential to maintaining the integrity of credit markets and the stability of the banking system [1].

The debate over stablecoin regulation highlights the growing tension between innovation in the crypto sector and the need for consistent financial oversight. With the stablecoin market cap already at $280.2 billion and projected to grow to $2 trillion, the implications of the loophole are significant. As lawmakers weigh the risks and benefits of digital money, the GENIUS Act’s stablecoin yield issue is likely to remain a central topic in the ongoing discussion [1].

Source: [1] title: US Banking Groups Sound Alarm Over GENIUS Act’s $6.6T Stablecoin Threat (url: https://coinmarketcap.com/community/articles/689c7861dae27f5e326d0f35/)