A coalition of US community bankers is urging Congress to amend the GENIUS Act, arguing that the law contains a loophole that allows yield-generating stablecoins to compete directly with traditional bank deposits.
Key Takeaways:
- US community bankers are urging Congress to close what they see as a loophole allowing stablecoin rewards.
- Banks warn that exchange-based incentives tied to stablecoins could drain deposits and weaken local lending.
- Crypto industry groups dispute the claims, arguing tighter rules would limit innovation without protecting bank lending.
In a letter sent Monday to the Senate, the Community Bankers Council of the American Bankers Association called on lawmakers to tighten restrictions in the stablecoin framework passed last year.
The group said the bill should be clarified to prevent stablecoin issuers from indirectly offering yield to tokenholders through third parties.
Community Bankers Say Stablecoin Rewards Undermine GENIUS Act Intent
“Some companies have exploited a perceived loophole allowing stablecoin issuers to indirectly fund payments to stablecoin holders through digital asset exchanges and other partners,” the council, which represents more than 200 community bank leaders, wrote.
The GENIUS Act explicitly bars stablecoin issuers from paying interest or yield, reflecting lawmakers’ concerns that yield-bearing tokens could draw funds away from insured bank savings accounts.
Community bankers argue that the intent of that provision is being undermined by crypto platforms that offer rewards tied to stablecoin holdings.
Major exchanges such as Coinbase and Kraken provide incentives for users who hold certain stablecoins on their platforms, even if the issuers themselves do not pay yield directly.
According to the council, that dynamic risks siphoning deposits from local banks and weakening their ability to lend.
“With this activity, the exception swallows the rule,” the group said, warning that large-scale deposit outflows could reduce credit availability for small businesses, farmers, students, and homebuyers in local communities.
The bankers also argued that exchanges and affiliated crypto firms are not equipped to replace banks as lenders and do not offer products backed by federal deposit insurance.
As a result, the council asked lawmakers to extend the GENIUS Act’s yield ban to affiliates and partners of stablecoin issuers through pending crypto market structure legislation.
The letter adds to growing pressure from banking groups. The Banking Policy Institute, led by JPMorgan chief executive Jamie Dimon, raised similar concerns last year, warning that unchecked stablecoin incentives could drive trillions of dollars out of the traditional banking system.
Crypto Groups Reject Bank Claims, Warn Against Tighter Stablecoin Rules
Crypto industry groups have pushed back. The Crypto Council for Innovation and the Blockchain Association previously told lawmakers that payment stablecoins are not used to fund loans and argued that tighter rules would curb innovation and limit consumer choice.
In November, Coinbase Global also called on the US Treasury Department to ensure its upcoming rules for the GENIUS Act remain faithful to Congress’s original intent.
The exchange warned that excessive regulation could stifle innovation and undermine US leadership in crypto.
It also clarified that the GENIUS Act’s interest-payment prohibition applies only to stablecoin issuers, not to exchanges or intermediaries that offer loyalty or rewards programs.
“Treating third‐party rewards or loyalty programs as prohibited ‘interest’ would rewrite Congress’s carefully drawn lines and conflict with the statute’s purpose,” Coinbase said.
The post US Community Bankers Seek Changes to GENIUS Act Over Stablecoin Yield Concerns appeared first on Cryptonews.
Credit: Source link
