U.S. Banks Push to Close Stablecoin Interest Loophole in GENIUS Act

The U.S. banking industry is intensifying its push to close a regulatory gap in the GENIUS Act that allows affiliated entities to offer interest on stablecoins, despite a statutory ban on the practice for issuers. Major banking trade groups—including the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America—have issued a joint statement urging Congress to amend the legislation to prevent exchanges and related firms from circumventing the restrictions [1].

These groups argue that the current wording of the GENIUS Act permits exchanges and affiliated platforms to offer yield to stablecoin holders, effectively enabling indirect interest payments that contradict the original intent of the law. They highlight that such loopholes could incentivize a shift of deposits from traditional banks and money market funds to stablecoins, reducing the availability of credit for households and businesses [1].

According to the groups, bank deposits serve as a critical funding source for lending, whereas stablecoins are not designed to support such credit functions and lack the same regulatory oversight. The Treasury Department has estimated that if interest-bearing stablecoins become widespread, they could lead to up to $6.6 trillion in deposit outflows, increasing funding pressures on banks and money market funds [1]. This, in turn, could lead to higher borrowing costs and tighter credit availability for the broader economy.

The debate over the GENIUS Act is not occurring in isolation. It is unfolding against a broader backdrop of global regulatory developments and potential shifts in U.S. digital asset policy. The groups warn that joint marketing arrangements between stablecoin issuers and exchanges could accelerate deposit outflows during periods of financial stress, further straining credit supply. They are calling for the prohibition on interest payments to be extended to all entities involved in the distribution and facilitation of stablecoin transactions [1].

Looking ahead, the discussion is likely to intersect with political developments, particularly if a future administration, such as a potential Trump administration, revisits digital asset oversight. Changes in regulatory enforcement could either tighten, relax, or adapt current restrictions to align with international standards. Additionally, if other major jurisdictions permit yield-bearing stablecoins under regulated frameworks, U.S. policymakers may face increased pressure to balance domestic credit stability with the global competitiveness of U.S.-issued stablecoins [1].

Industry stakeholders are closely watching how these dynamics evolve, recognizing that stablecoins could play a transformative role in international payment systems and cross-border commerce. By enabling near-instant multi-currency settlements, they offer an alternative to traditional correspondent banking models. However, the potential risks—especially in terms of credit availability and financial stability—have led banking groups to emphasize the need for a clear and consistent regulatory framework [1].

The outcome of these discussions could have ripple effects beyond the banking sector. E-commerce platforms, remittance services, and DeFi protocols may all be impacted, depending on how stablecoin regulations are ultimately shaped [1].

Source: [1] GENIUS Act Bombshell? Banking Groups Demand Stablecoin Interest Loophole Close Before Cash Flees (https://cryptonews.com/news/genius-act-banking-groups-seek-stablecoin-yield-curb/)