U.S. Banks Clash with Coinbase Over Stablecoin Yield Loophole in GENIUS Act

Banks across the U.S. have sounded alarms over potential credit risks posed by stablecoins, especially those offering yield-bearing features, and have entered into a regulatory dispute with cryptocurrency exchange Coinbase over the language of the proposed GENIUS Act [1]. The American Bankers Association (ABA) and 52 other trade groups argue that while the legislation prohibits stablecoin issuers from offering interest to holders, it does not extend the same restriction to affiliated entities such as exchanges, brokers, or dealers [2]. This, they claim, creates a dangerous loophole that could incentivize depositors to shift funds out of traditional banking systems and into stablecoins in pursuit of yield, potentially shrinking the capital banks rely on for lending [3].

The banking groups warn that if stablecoins evolve into store-of-value assets rather than just payment tools, it could distort market incentives and disrupt the credit creation process. They urge Congress to broaden the scope of the law to include affiliated entities in the yield restriction, arguing that unchecked interest payments could destabilize financial markets [4]. Several banking advocacy groups, including the Bank Policy Institute and the Financial Services Forum, have echoed these concerns, noting that during periods of economic stress, capital could flow en masse into stablecoins, leading to tighter credit conditions across the broader economy [5].

Meanwhile, Coinbase has pushed back against these warnings, with Chief Legal Officer Paul Grewal dismissing them as an effort to block competition. On X, Grewal noted that lawmakers from both parties had already rejected similar attempts to stifle competition in the past and urged the industry to move forward [6]. The company, which has expanded beyond its core exchange operations into services such as over-the-counter cryptocurrency loans and margin financing, now finds itself at the center of a regulatory tug-of-war with the traditional banking sector [7].

The conflict reflects a broader struggle to modernize the U.S. payments system without destabilizing the credit infrastructure that supports the economy. With stablecoins already deeply embedded in global crypto markets and products like BlackRock’s IBIT Bitcoin ETF holding over $90 billion in assets, the stakes are significant. Banks argue that rising competition from yield-bearing stablecoins could lead to higher lending costs and reduced credit availability, ultimately affecting both households and businesses [8].

The regulatory debate is also drawing attention from key policymakers. Senator Sherrod Brown, who chaired the banking committee until 2025, has long raised concerns about the risks associated with digital assets, including their potential for misuse in illicit finance and money laundering. As the discussion over the GENIUS Act continues, his influence could be crucial in shaping the final outcome [9].

In response to the shifting landscape, some banks are taking steps to integrate stablecoins into their services. For example, Citigroup has started exploring stablecoin custody and related offerings, signaling a potential shift in how traditional institutions approach crypto [10]. However, these efforts highlight the challenges of incorporating stablecoins into the existing financial framework without compromising stability or regulatory standards.

The situation remains unresolved, with banks continuing to call for Congress to close the yield loophole in the GENIUS Act, while crypto firms like Coinbase advocate for a regulatory environment that fosters innovation. The final direction of the legislation will likely determine the future role of stablecoins in the broader financial ecosystem and the extent to which traditional and digital finance can coexist.

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Source:

[1] https://coindoo.com/banks-warn-of-credit-risks-clash-with-coinbase-over-stablecoin-law/

[2] https://coinmarketcap.com/community/articles/689ece016b448842fbc1c51a/

[3] https://www.livebitcoinnews.com/us-banks-demand-closure-of-genius-acts-stablecoin-yield-loophole/

[7] https://www.galaxy.com/insights/research/the-state-of-crypto-leverage-q2-2025

[9] https://www.politico.com/newsletters/morning-money/2025/08/14/sherrod-browns-never-ending-crypto-headache-00508938

[10] https://www.reuters.com/business/finance/