The American Bankers Association recently raised concerns that, although the (GENIUS Act) prohibits stablecoin issuers from directly paying interest, it does not restrict them from indirectly providing yields through affiliated companies. They worry that if this loophole is not closed, it will accelerate the flow of funds from the banking system to the crypto market, impacting credit supply and overall financial stability.
Banking groups join forces: Demand to close the stablecoin 'interest loophole'
Led by the Bank Policy Institute (BPI), several banking organizations, including the American Bankers Association (ABA), Consumer Bankers Association (CBA), Independent Community Bankers of America (ICBA), and Financial Services Forum, recently jointly wrote to Congress, requesting amendments to the (GENIUS Act).
They pointed out that the newly passed legislation explicitly prohibits stablecoin issuers from directly offering interest or yields to token holders, but does not clearly cover cryptocurrency exchanges or other related companies, potentially creating a gray area where issuers may 'de facto pay interest' through partners.
Previous reports indicated that Coinbase offers users an annualized reward of 4.1% on $USDC, while PayPal offers about 3.7% annualized on PYUSD. Neither is the issuer, but they provide yield services to attract users through support for third-party issued stablecoins like Circle or Paxos.
Further Reading
The Genius Act prohibits stablecoin issuers from paying interest! Two platforms exploit loopholes: We changed to 'rewards'
Could impact $6.6 trillion in deposits, shaking the U.S. credit system
BPI cited a report from the U.S. Treasury in April warning that if stablecoins can provide yields like bank deposits or money market funds, it could trigger outflows of up to $6.6 trillion in bank deposits.
They noted that the banking industry relies on absorbing deposits to support lending; if a large amount of funds shift to stablecoins, it will lead to a contraction in credit supply and an increase in interest rates, raising the cost of loans for businesses and households, further weakening the liquidity and resilience of the U.S. economy.
Starting from fundamental differences: Why payment stablecoins should not pay interest?
Banking groups emphasize that stablecoins are fundamentally different from bank deposits and money market funds, and stablecoins cannot replace the latter two.
Banks generate income through lending or investments, and money market funds are securities that offer returns through investments. Since payment stablecoins do not engage in lending and are not subject to securities regulation, they should not offer interest or yields in the same manner.
BPI stated in the letter that if stablecoins continue to provide yields, it will amplify the risk of deposit outflows during periods of financial stress, ultimately impacting the overall credit mechanism, which will hit commercial users and households the hardest.
Last month, the American Bankers Association also jointly urged the Office of the Comptroller of the Currency (OCC) to put the brakes on the recent 'wave of national trust bank license applications,' arguing that crypto companies lack the capability and experience to operate fiduciary businesses, and hasty approvals may lead to unfair competition and disrupt the existing financial order.
The White House and SEC are joining forces, optimistic about the tremendous growth potential of stablecoins.
As of today, the total market value of global stablecoins is approximately $271.3 billion, which is only a small fraction of the $22 trillion M2 money supply in the United States. However, the U.S. Treasury predicts that by 2028, the market value of stablecoins will soar to $2 trillion.
With President Trump signing the (GENIUS Act), and the White House and SEC expressing optimism through the digital asset report and Project Crypto speeches, this is expected to further promote the robust development of U.S. dollar stablecoins.
Further Reading
Analysis of Trump's 160-page crypto report! Two key points at a glance, why is the industry's reaction polarized?
SEC launches crypto initiative! Is it going to blockchain the U.S. financial market? Five core visions at a glance
This article is republished with permission from: (Chain News)
Original title: (American banking industry demands to close the (GENIUS) loophole: Stablecoin interest could trigger $6.6 trillion in deposit outflows)
Original author: Crumax
'Demand to close the loophole in the Genius Act! American banking industry: Stablecoin interest could lead to outflows of $6.6 trillion in deposits' this article was first published in 'Crypto City'
