A coalition of leading U.S. banking organizations, including the American Bankers Association and the Bank Policy Institute, has intensified calls for legislative amendments to the GENIUS Act aimed at closing a critical regulatory loophole that permits stablecoin affiliates to offer interest or yield on digital assets. While the existing statute prohibits stablecoin issuers from paying interest on their tokens, it does not explicitly extend this restriction to exchanges, brokers, dealers, or affiliated firms that facilitate yield offerings. This gap has enabled stablecoin affiliates to market interest-bearing products, effectively circumventing the intent of the GENIUS Act and creating regulatory arbitrage opportunities. The banking groups argue that extending the prohibition to all entities connected to stablecoin issuance is necessary to uphold consistent regulatory oversight and maintain the integrity of the banking system. The Treasury Department has also raised concerns about the risks posed by mass stablecoin inflows during financial crises.
The ramifications of this loophole extend beyond regulatory coherence, posing tangible risks to the traditional banking sector’s deposit base. Banking groups warn that stablecoin interest schemes could precipitate deposit outflows estimated as high as $6.6 trillion from U.S. banks, with consequential reductions in credit availability for households and businesses. By attracting retail investors through competitive yields, stablecoins siphon funds away from regulated savings accounts, undermining banks’ capacity to fund loans and sustain credit flows. This dynamic threatens economic stability, as the erosion of deposits constrains banks’ lending operations, which are critical to financing consumption and investment across the economy. Such deposit shifts could increase funding pressures on banks and money market funds, potentially leading to higher borrowing costs.
Industry leaders emphasize that stablecoins were designed primarily as payment instruments—low-risk, stable-value assets—not as yield-generating investments. Permitting interest payments on these digital tokens risks destabilizing the dual banking system by drawing deposits away from federally insured institutions. Such developments introduce systemic vulnerabilities, particularly as the stablecoin market, currently valued at approximately $280 billion and dominated by Tether and USD Coin, is projected to expand to $2 trillion within a few years. As stablecoins become more embedded in financial ecosystems, the urgency to close regulatory gaps intensifies, with banking groups advocating for measures that ensure consumer protections and preserve the flow of credit consistent with traditional banking norms.
