Key Takeaways:
- U.S. banking associations want Congress to close an interest-payment loophole in the GENIUS Act for stablecoin affiliates.
- The debate could expand into a broader discussion on the role of U.S. stablecoins in international payment systems.
- Future political shifts may influence whether current restrictions are tightened, relaxed, or adapted to global regulatory norms.
Major U.S. banking trade groups are calling for Congress to block stablecoin issuers and affiliated firms from paying interest to token holders, warning that the practice could drain deposits from banks and reduce lending to households and businesses.
In a joint statement published recently, organizations including the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America (ICBA) said current provisions under the GENIUS Act leave a gap that allows exchanges and related entities to offer yield on payment stablecoins, despite a statutory ban on issuers doing so.
GENIUS Act Under the Magnifying Glass
The groups argued that without an explicit prohibition covering distribution partners, the intent of the law will be undermined. They pointed to Treasury Department estimates that stablecoins capable of offering interest could result in up to $6.6 trillion in deposit outflows, intensifying funding pressures for banks and money market funds.
The statement emphasized that bank deposits remain a key source of loan funding, while money market funds operate under securities regulations that permit them to offer yield. Payment stablecoins, the groups noted, are not structured to fund loans and do not face the same supervisory oversight.
“Incentivizing a shift from bank deposits and money market funds to stablecoins would end up increasing lending costs and reducing loans to businesses and consumer households,” the statement said.
Under the GENIUS Act, payment stablecoin issuers are prohibited from offering interest, yield, or other financial rewards. The banking associations said exchanges and affiliates acting as distribution channels can still provide such incentives under current language, creating a pathway for indirect interest payments that sidestep the restriction.
Stablecoins, the Trump Administration, and Political Shifts
They warned that joint marketing arrangements between issuers and exchanges could accelerate deposit outflows during periods of financial stress, reducing credit supply and raising borrowing costs for Main Street borrowers.
The letter urged lawmakers to extend the prohibition to all entities facilitating stablecoin transactions, including affiliated platforms and intermediaries, to preserve the stability of traditional funding sources.
Looking ahead, the debate over the GENIUS Act could intersect with political shifts, especially if a Trump administration revisits federal priorities on digital asset oversight. Any future policy recalibration could influence how aggressively agencies enforce or revise restrictions on stablecoin activity, including interest-related provisions.
Industry participants are also watching whether international developments will affect U.S. positions. If other major jurisdictions permit yield-bearing stablecoins under regulated frameworks, pressure could mount on Congress and regulators to balance domestic credit stability concerns with the competitive positioning of U.S.-issued stablecoins in cross-border markets.
Frequently Asked Questions (FAQs)
Tighter rules could limit the appeal of U.S.-issued stablecoins abroad, especially in markets where regulated yield-bearing tokens are permitted.
They can facilitate near-instant settlement in multiple currencies, offering an alternative to traditional correspondent banking systems in international commerce.
E-commerce platforms, remittance providers, and decentralized finance (DeFi) protocols could all be affected depending on how payment token rules evolve.
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