Rich by Coin

Traditional banks have pressed their case for changes to the GENIUS Act since its enactment, arguing that a loophole permits stablecoin issuers to indirectly pay interest by routing payments through exchanges and other partners. A coalition of more than 200 community bank leaders recently urged Congress to close this loophole, warning that it could undermine the act’s intent and disrupt community lending. Under the law, stablecoin issuers cannot pay interest because allowing inducements like interest payments, yield, or rewards could incentivize customers to park their savings not in a bank, but in stablecoins, the ABA letter states, noting that Congress recognized this could significantly disrupt lending because banks use those deposits to fund loans. Some companies have exploited a perceived loophole allowing stablecoin issuers to indirectly fund payments to stablecoin holders through digital asset exchanges and other partners.

The Banking Committee is expected to vote next week on a crypto market-structure bill that could serve as a vehicle to amend the GENIUS Act, with advocates arguing that such arrangements undermine the prohibition on interest and yield. Crypto groups have responded with their own letter arguing that changes would inhibit financial innovation. A Cornerstone Advisors study shows traditional financial institutions experienced $2.15 trillion in deposit flight to fintech rivals over the past five years, with 65% of the losses coming from Gen X and Boomer customers at community banks and credit unions. Bankers continue to target stablecoins, warning that billions displaced from community bank lending could harm small businesses and households.

The ABA stresses that the prohibition on interest should apply to affiliates and partners of stablecoin issuers, warning that anything less could endanger economic growth and local communities. Traditional banks have pressed the case for amendments to the GENIUS Act, six months after its enactment, arguing a loophole allows stablecoin issuers to indirectly pay interest via exchanges and partners. An ABA letter signed by more than 200 community bank leaders warns that this could undermine the act’s intent, as banks rely on stablecoin deposits to fund loans for households and local businesses. The Banking Committee is slated to vote next week on a crypto market-structure bill that could serve as a vehicle to amend the GENIUS Act.