US banking groups are urging Congress to close what they call a GENIUS Act loophole that allows stablecoin issuers to offer yields indirectly through affiliates and exchanges. Their warning frames stablecoin rewards as a threat to deposits that fund lending across the economy.
The letter, led by the Bank Policy Institute and joined by major trade groups, says the law’s interest ban on issuers needs to clearly extend to partners. Without that, they argue, yield-bearing promotions could siphon deposits at scale and raise borrowing costs for families and businesses.
What the “yield loophole” means
The GENIUS Act prohibits stablecoin issuers from paying interest or yield directly to token holders. Banks say the statute’s silence on affiliates and exchanges creates a path for effectively equivalent rewards that entice users to park cash in stablecoins.
In practice, rewards on platforms can mirror interest, even if labeled differently. The groups contend this undermines the law’s intent and blurs lines between payment tokens and regulated deposit or fund products.
Did you know?
The GENIUS Act bars stablecoin issuers from paying interest directly, but banks argue that exchange or affiliate rewards can replicate interest in practice.
The $6.6 trillion risk scenario
Citing a Treasury analysis, the letter warns of potential deposit outflows reaching $6.6 trillion if yield-bearing stablecoins scale. Banks say such a shift would strain deposit funding, heighten flight risk in stress, and compress credit availability.
They argue the result could be higher rates, fewer loans, and increased costs for small businesses and households. Policymakers, they say, should act now to avoid destabilizing swings in bank liabilities.
Why stablecoins differ from deposits and funds
Banks stress that payment stablecoins do not fund loans or invest in securities to generate returns like deposits or money market funds do. That structural gap, they argue, is why stablecoins should not pay interest or yield akin to regulated products.
Allowing yield, they say, turns a payment instrument into a quasi-investment without the same prudential guardrails. Clarity on rewards would reduce arbitrage between regulatory regimes.
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What banks want Congress to do
Trade groups are asking lawmakers to explicitly prohibit interest or yield paid by affiliates, exchanges, or any related entities. They also want consistent supervision of promotional rewards that function like interest.
Additional proposals include clearer disclosures, standardized terminology for rewards, and coordination across banking and securities regulators to police circumvention.
The market reality: stablecoins and rewards today
Some issuers design tokens with built-in yields, while others see rewards offered on exchanges where users custody their stablecoins. Those perks remain a key growth lever, especially when traditional savings rates fluctuate.
Banks contend that unregulated rewards distort the market by diverting transactional balances from insured deposits to tokens that operate beyond deposit insurance and capital requirements.
Scale check: stablecoins vs money supply
Stablecoins remain a fraction of US money aggregates, with a market cap in the hundreds of billions versus tens of trillions in broad money measures. Even so, rapid growth and concentration among a few large tokens amplifies potential spillovers.
For regulators, the question is less today’s share and more the trajectory if rewards proliferate and integrate with mainstream payments and treasury management.
The road ahead
Congressional clarification could define how far the interest ban extends across crypto distribution. Any fix will need to preserve payments innovation while maintaining stable, insured funding for lending.
As the GENIUS Act beds in, the balance between competition and prudential safeguards will shape whether stablecoin rewards complement the banking system or erode it at scale.
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