Community banking groups are urging Congress to amend the GENIUS Act following its 2025 enactment, arguing that the law unintentionally allows yield to be paid on stablecoins through third parties. Banks say this loophole undermines deposit stability, weakens prudential safeguards, and risks accelerating capital flight from regulated institutions.
At the center of the dispute is a rule that bans stablecoin issuers from paying interest directly, while leaving room for exchanges and platforms to offer yield-like incentives. Community banks argue that this imbalance creates unfair competition because regulated lenders cannot match those incentives without breaching capital, liquidity, and deposit-insurance requirements.
Why Banks Say the Current Framework Is Risky
Under the GENIUS Act, payment-focused stablecoins are barred from offering issuer-paid yield. Banking associations such as the ICBA and the ABA contend that third-party rewards and incentive programs replicate yield in practice, without equivalent supervision. In their view, this amounts to regulatory arbitrage, allowing non-bank entities to attract deposits-like funds without bearing systemic responsibilities.
Bank groups cite projections that estimate as much as $6.6 trillion in potential deposit outflows if this structure persists. They frame the risk not just as competitive pressure, but as a threat to credit availability for households and small businesses that depend on stable bank funding.
What Banks Want Congress to Change
The requested fix is targeted but broad in effect. Banks want the yield prohibition expanded so that no entity—issuer or intermediary—can legally provide interest or reward-like returns on stablecoin balances. They argue that doing so would reduce deposit volatility, limit liquidity stress, and preserve the banking system’s role in credit intermediation.
Such a change would also reshape compliance expectations across the crypto ecosystem. Exchanges, custodians, and payment firms would need clearer definitions of what qualifies as “yield-like” behavior and stronger reporting to show they are not circumventing the rule through rewards or fee credits. For treasurers and traders, this would narrow arbitrage strategies based on interest differentials and refocus stablecoin use on payments and settlement efficiency.
Policymakers, investors, and compliance teams are now watching how Congress responds. Any amendment or regulatory clarification would directly affect deposit flows, capital planning, and governance obligations for firms that custody or facilitate stablecoins, forcing updates to disclosures, risk models, and operational controls.
