US Community Banks Press for GENIUS Act Stablecoin 'Loophole' Closure

US community banks have intensified efforts to close a regulatory loophole that allows stablecoin issuers to offer rewards to token holders, circumventing the intent of the GENIUS Act. A letter from the American Bankers Association's Community Bankers Council to the US Senate emphasized the need to tighten the law to prevent digital asset exchanges from indirectly funding payments to stablecoin holders.

The GENIUS Act, passed in 2025, bans stablecoin issuers from offering interest or yield to holders, a move supported by banking groups who argue that it prevents unfair competition with bank savings accounts. However, exchanges such as Coinbase and Kraken have continued offering rewards on stablecoins through platforms, which the community bank leaders say undermines the law's purpose.

The Council warned that allowing such indirect rewards puts community banks at risk of losing deposits that fund local lending. Without those funds, banks may struggle to support small businesses, farmers, and homebuyers, which are crucial to local economic growth.

Why the Move Happened

Community banks represent the backbone of local economies across the United States, and they argue that stablecoins threaten their lending abilities by drawing deposits away from traditional financial institutions. The Council said that some crypto firms are exploiting gaps in the GENIUS Act to provide indirect incentives, encouraging customers to move savings out of banks.

Representatives of more than 200 community banks warned that if the loophole is not closed, up to $6.6 trillion in deposits could be at risk, threatening the availability of credit for families and businesses.