Leading U.S. banking groups are pressing Congress to tighten stablecoin regulations, warning that a gap in the new GENIUS Act could let issuers skirt a ban on paying interest to token holders.
In a letter sent Tuesday, the Bank Policy Institute (BPI), joined by the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and the Financial Services Forum, said the law’s current language could indirectly allow stablecoin issuers to offer yields through affiliates or partner exchanges.
The GENIUS Act, signed into law by U.S. President Donald Trump on July 18, 2025, prohibits issuers from paying interest or yield directly. But it doesn’t stop affiliated firms, such as crypto exchanges, from rewarding users who hold stablecoins on their platforms. Banks say this loophole could pull deposits away from the traditional banking system.
BPI pointed to an April 2025 U.S. Treasury report estimating that yield-bearing stablecoins could cause up to $6.6 trillion in deposit outflows, draining funds that banks use to make loans. “These distinctions are why payment stablecoins should not pay interest the way highly regulated banks do on deposits or offer yield as money market funds do,” the groups wrote.
The concern is that stablecoins do not finance lending or invest in securities like bank deposits or money market funds. If investors chase higher yields from stablecoins, banks warn it could lead to higher borrowing costs, fewer loans, and reduced credit availability, especially during economic stress.
Stablecoin yields are already a key marketing tool for issuers. Some pay interest directly, while others, such as USD Coin (USDC), rely on exchanges like Coinbase and Kraken to reward holders. Banking groups say this model is exactly what the GENIUS Act fails to block.
For now, the stablecoin market remains small compared to the U.S. money supply. The sector’s market cap stands at $280.2 billion, against the $22 trillion reported by the Federal Reserve in June. The market is dominated by Tether (USDT) at $165 billion and USDC at $66.4 billion, according to CoinGecko.
Even so, the Treasury expects stablecoins to grow to $2 trillion by 2028. Many in the crypto sector see the GENIUS Act as a boost for U.S. dollar–backed stablecoins, enhancing the dollar’s role globally.
Banking groups, however, say that without closing the yield loophole, this growth could come at the expense of financial stability. “The result will be greater deposit flight risk… that will undermine credit creation throughout the economy,” the BPI warned.
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