U.S. Banks Push GENIUS Act Reforms to Close Stablecoin Loopholes

U.S. banking groups are intensifying efforts to revise the GENIUS Act, a 2025 law designed to regulate stablecoins, citing concerns over regulatory gaps and potential financial instability. The coalition, which includes major financial institutions and trade associations such as the Bank Policy Institute, argues that the current framework lacks clarity on critical issues such as stablecoin custody, interest payments, and institutional participation. Their lobbying efforts emphasize the urgency of legislative action to close loopholes that could lead to significant risks for the broader financial system [1].

A key point of contention is Section 16(d) of the GENIUS Act, which prohibits stablecoin issuers from offering interest or yields on deposits. Critics argue that this restriction places traditional banks at a competitive disadvantage, as they are often restricted from engaging in similar activities. The concern is that non-bank entities, such as stablecoin platforms, may gain an unfair edge in asset management and payment services, potentially circumventing traditional regulatory oversight [2].

Banks warn that if left unaddressed, these regulatory ambiguities could lead to a significant shift in deposit flows. The Bank Policy Institute has highlighted the potential risk of up to $6.6 trillion in deposit outflows from the traditional banking system if the loopholes remain unresolved. This could disrupt credit availability for American businesses and households, according to Greg Baer, the institute’s president and CEO [3].

In response, several major banks, including Citigroup, are exploring opportunities in the stablecoin space. A senior executive at the firm recently indicated that the bank is considering offering custody and payment services for stablecoins. However, such initiatives depend on regulatory clarity, which the industry is now actively seeking through legislative reform [4].

Industry leaders have also drawn parallels to past stablecoin crises, such as the Terra/UST collapse in 2022 and regulatory challenges faced by Tether and Circle. These events underscore the importance of a balanced regulatory approach to prevent instability and maintain market confidence. Analysts suggest that addressing the current loopholes in the GENIUS Act could help mitigate similar risks in the future [5].

The call for reform has gained bipartisan support, with letters and public statements being sent to Congress from both financial institutions and consumer advocacy groups. The message is clear: without legislative intervention, the existing structure of the GENIUS Act could distort credit flows and undermine the stability of the broader financial system. The banking sector is urging lawmakers to close these gaps and ensure a level playing field for all participants in the evolving digital asset landscape [6].

Sources:

[1] title1: Wall Street Joins Consumer Advocates to Call for Edit to ...

url1: https://www.coindesk.com/policy/2025/08/14/wall-street-joins-consumer-advocates-to-call-for-edit-to-genius-act-on-stablecoins

[2] title2: U.S. Banking Groups Push for GENIUS Act Reforms to ...

url2: https://www.ainvest.com/news/banking-groups-push-genius-act-reforms-clarify-stablecoin-rules-2508/

[3] title3: Trade Groups Urge Congress to Address GENIUS Act ...

url3: https://www.consumerfinanceandfintechblog.com/2025/08/trade-groups-urge-congress-to-address-genius-act-loopholes/

[4] title4: Citigroup considers custody and payment services for ...

url4: https://www.reuters.com/business/finance/citigroup-considers-custody-payment-services-stablecoins-crypto-etfs-2025-08-14/

[5] title5: ICBA, other groups ask Congress to fix GENIUS Act flaw

url5: https://www.icba.org/newsroom/news-and-articles/2025/08/14/icba-other-groups-ask-congress-to-fix-genius-act-flaw

[6] title6: US banks push congress to close stablecoin interest ...

url6: http://www.msn.com/en-us/money/markets/us-banks-push-congress-to-close-stablecoin-interest-loophole-under-genius-act/ar-AA1Kr9ha?apiversion=v2&batchservertelemetry=1&domshim=1&noservercache=1&noservertelemetry=1&renderwebcomponents=1&wcseo=1