Traditional Banks Warn $6.6T at Risk as Stablecoin Yields Tilt the Playing Field

U.S. banks have intensified their lobbying efforts to amend the recently passed GENIUS Act, citing concerns that the legislation could inadvertently enable crypto exchanges to offer yield on stablecoins, thereby distorting competition and posing systemic risks to traditional financial institutions. Under the GENIUS Act, banks are barred from paying interest on their own stablecoins but are allowed to issue them. Meanwhile, crypto exchanges can offer yield on third-party stablecoins, such as USDC and USDT, creating a regulatory imbalance according to banking lobbies. This asymmetry has sparked warnings of a potential deposit outflow from traditional banks, with a U.S. Treasury analysis estimating that as much as $6.6 trillion in deposits could shift toward crypto platforms if stablecoins begin to yield returns [1]. The American Bankers Association, the Bank Policy Institute, and the Consumer Bankers Association have all voiced concerns about the implications for credit availability and borrowing costs, particularly during periods of financial stress [2].

The debate has drawn strong opposition from the crypto industry, which views the banks’ stance as anti-competitive and an attempt to stifle innovation. The Crypto Council for Innovation and the Blockchain Association argue that the current provisions of the GENIUS Act encourage healthy competition and consumer choice rather than undermine them. Coinbase’s chief legal officer, Paul Grewal, has been vocal in dismissing the banks' claims, stating that previous legislative efforts to restrict crypto competition were rejected by lawmakers and the President [3]. Industry representatives assert that the rules are not a loophole but a deliberate mechanism to promote a more dynamic financial ecosystem.

The U.S. Treasury’s April report highlighted the potential macroeconomic consequences of such a shift, noting that a mass migration of deposits to yield-bearing stablecoins could reduce banks’ ability to lend and increase borrowing costs for households and businesses. The report warned that the instability could become particularly pronounced during economic downturns, exacerbating liquidity challenges for traditional financial institutions [4]. This has led to calls for policymakers to revisit the specific provisions of the GENIUS Act to address what banks perceive as an unfair playing field.

Meanwhile, the Federal Reserve has signaled a more accommodating stance toward digital assets, easing some restrictions on crypto supervision to encourage broader adoption. This shift aligns with President Donald Trump’s executive order aimed at reducing barriers to crypto innovation and has been interpreted as a positive signal by the crypto sector. Fed Governor Christopher Waller emphasized the benefits of smart contracts and distributed ledger technology in streamlining everyday financial transactions [5]. Analysts suggest that the regulatory environment is gradually evolving to accommodate the rise of digital assets, though traditional institutions remain cautious about ceding ground to crypto platforms.

The ongoing conflict between traditional finance and the crypto industry underscores the broader struggle over the future of financial systems. While banks argue that stability and systemic safety must be prioritized, crypto advocates insist that innovation and competition should not be stifled. The outcome of the debate over the GENIUS Act could shape the trajectory of the U.S. financial landscape, influencing whether institutions continue to resist or adapt to the growing adoption of digital assets.

Source:

[1] title1 (https://www.blocmates.com/news-posts/us-banks-lobby-to-amend-genius-act-over-stablecoin-interest-concerns)

[2] title2 (https://beincrypto.com/us-banks-push-back-genius-act-stablecoins/)

[3] title3 (https://cryptorank.io/news/feed/c3b82-us-banks-lobby-to-amend-genius-stablecoin-act-citing-6-6-trillion-risk)