What to Know
Banking groups warn that the GENIUS Act’s loopholes could allow stablecoin yield via third parties, risking a flood of deposits out of traditional banks.
The American Bankers Association, Bank Policy Institute, and over 50 state banking bodies warn of a potential $6.6 trillion deposit flight.
They urge Congress to extend the Act’s interest ban to exchanges, brokers, and affiliates to preserve lending stability.
Banking associations, including the American Bankers Association, the Bank Policy Institute, and more than 50 state-level organizations, are pressing the U.S. Senate to strengthen the newly passed GENIUS Act by closing key legal loopholes.
According to a Decrypt report, the GENIUS Act prohibits stablecoin issuers from paying interest directly to holders. But it doesn’t say that crypto exchanges or related platforms can’t offer rewards for stablecoin deposits. Banking groups say that this lack of oversight allows companies to get around the law by moving yield through partners.
That could incentivize consumers to shift from traditional bank deposits into yield-bearing stablecoins. A U.S. Treasury Department projection estimates losses of up to $6.6 trillion in bank deposits, which could disrupt traditional lending and increase borrowing costs for everyday Americans.
Why It Matters
These stablecoin-linked incentives could destroy the current banking system. Banks need customer deposits to lend money, which businesses and households need. If a lot of deposits move into stablecoin products, it could make less credit available, which would raise interest rates and make it harder to get a loan.
Also, most stablecoins that make money right now are linked to major platforms like USDC. Users earn interest through exchanges like Coinbase and Kraken, not from the issuers themselves. Banking groups say this is a risky way to get around the rules.
What the Banks Are Asking
Banking groups want lawmakers to tighten the GENIUS Act so it blocks more than just banks from paying interest on stablecoins. They want the ban to also cover brokers, dealers, and crypto exchanges, saying that without this change, issuers could easily bypass the rule by partnering with third parties to offer yields—undermining the law’s intent to prevent risky, bank-like behavior in the stablecoin sector.
They’re also pushing for stricter rules on who can issue stablecoins. The law lets non-financial companies issue them right now, but banks say this could let less regulated companies into a key part of the financial system, which could make things less stable. They also want to get rid of the rule that lets state-chartered stablecoin issuers do business in all states without federal approval. They want all states to have the same rules so that there are no gaps in regulation. The groups also want clearer reserve standards, regular audits, and stronger rules to protect consumers to make sure that all stablecoins are backed, clear, and safe.
Industry Context
The GENIUS Act was passed on June 17 with both parties’ support. This law sets up the first rules for regulating stablecoins in the U.S. These rules include requirements like having reserves backed by assets and making the composition of reserves public. The bill moved to the House for approval shortly thereafter.
Meanwhile, large crypto firms such as Paxos and Circle are moving quickly applying for national trust charters to take advantage of the new regulatory clarity. Yet, even prominent voices within the crypto and finance space are calling for deeper reform. Analysts are worried that the current version of the law doesn’t have enough long-term protections, especially when it comes to yield and systemic risk.
Final Thoughts
The GENIUS Act marks a groundbreaking shift toward regulated stablecoin usage in the U.S. But as the dust settles, banking groups warn that modern finance and banks themselves are on shaky ground unless lawmakers fix key gaps.
Public and private sectors must act fast. Without broader coverage of interest bans and tighter issuer qualifications, the stablecoin experiment could reshape credit markets—without safety nets.
Also Read: SEC Chairman and Commissioner Welcome GENIUS Act Approval
